LAKELAND BANCORP INC - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended		March 31, 2021
	OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


Commission file number			000-17820

LAKELAND BANCORP, INC.

(Exact name of registrant as specified in its charter)


New Jersey			22-2953275
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

250 Oak Ridge Road, Oak Ridge, New Jersey 07438

(Address of principal executive offices and zip code)

(973) 697-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock, no par value	LBAI	The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 4, 2021, there were 50,601,349 outstanding shares of Common Stock, no par value.

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LAKELAND BANCORP, INC.

Form 10-Q Index


		PAGE
	Part I. Financial Information

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020 (unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)	7
	Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	45

	Part II. Other Information

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	46

Signatures		47

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets


	March 31, 2021		December 31, 2020
(dollars in thousands)	(unaudited)

Assets
Cash	$	189,506	$	262,327
Interest-bearing deposits due from banks	12,612		7,763
Total cash and cash equivalents	202,118		270,090
Investment securities available for sale, at fair value (allowance for credit losses of $144 at March 31, 2021 and $2 at December 31, 2020)	968,394		855,746
Investment securities held to maturity (fair value of $87,215 at March 31, 2021 and $93,868 at December 31, 2020 and no allowance for credit losses at March 31, 2021 and December 31, 2020)	84,994		90,766
Equity securities, at fair value	14,590		14,694
Federal Home Loan Bank and other membership bank stock, at cost	10,772		11,979
Loans held for sale	1,230		1,335
Loans, net of deferred fees	6,108,946		6,021,232
Less: Allowance for credit losses	67,252		71,124
Net loans	6,041,694		5,950,108
Premises and equipment, net	48,539		48,495
Operating lease right-of-use assets	16,199		16,772
Accrued interest receivable	19,840		19,339
Goodwill	156,277		156,277
Other identifiable intangible assets	3,063		3,288
Bank owned life insurance	115,756		115,115
Other assets	88,295		110,293
Total Assets	$	7,771,761	$	7,664,297
Liabilities and Stockholders' Equity
Liabilities





Deposits	6,635,226		6,455,783
Federal funds purchased and securities sold under agreements to repurchase	111,999		169,560
Other borrowings	25,000		25,000
Subordinated debentures	118,267		118,257
Operating lease liabilities	17,574		18,183
Other liabilities	95,630		113,730
Total Liabilities	7,003,696		6,900,513
Stockholders' Equity
Common stock, no par value; authorized 100,000,000 shares; issued 50,729,527 shares and outstanding 50,598,492 shares at March 31, 2021 and issued 50,610,681 shares and outstanding 50,479,646 shares at December 31, 2020	562,984		562,421
Retained earnings	208,224		191,418
Treasury shares, at cost, 131,035 shares at March 31, 2021 and December 31, 2020	(1,452)		(1,452)
Accumulated other comprehensive (loss) income	(1,691)		11,397
Total Stockholders' Equity	768,065		763,784
Total Liabilities and Stockholders' Equity	$	7,771,761	$	7,664,297

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)


	For the Three Months Ended March 31,
(in thousands, except per share data)		2021		2020
Interest Income
Loans and fees		$	58,778	$	57,857
Federal funds sold and interest-bearing deposits with banks		37		159
Taxable investment securities and other		3,981		5,229
Tax-exempt investment securities		612		332
Total Interest Income		63,408		63,577
Interest Expense
Deposits		5,124		10,863
Federal funds purchased and securities sold under agreements to repurchase		23		429
Other borrowings		1,533		2,386
Total Interest Expense		6,680		13,678
Net Interest Income		56,728		49,899
Provision for credit losses (1)		(2,642)		9,223
Net Interest Income after Provision for Credit Losses		59,370		40,676
Noninterest Income
Service charges on deposit accounts		2,296		2,500
Commissions and fees		1,598		1,640
Income on bank owned life insurance		634		665
Loss on equity securities		(144)		(653)
Gains on sales of loans		708		415
Gains on sales of investment securities, net		—		342
Swap income		562		2,843
Other income		105		259
Total Noninterest Income		5,759		8,011
Noninterest Expense
Salaries and employee benefits		20,518		19,727
Net occupancy expense		3,019		2,836
Furniture and equipment		3,299		2,560
FDIC insurance expense		711		298
Stationery, supplies and postage		378		399
Marketing expense		318		227
Data processing expense		1,255		1,253
Telecommunications expense		522		444
ATM and debit card expense		604		587
Core deposit intangible amortization		226		265
Other real estate and repossessed asset expense		—		12
Long-term debt prepayment fee		—		356

Other expenses		3,053		3,540
Total Noninterest Expense		33,903		32,504
Income before provision for income taxes		31,226		16,183
Provision for income taxes		8,051		3,791
Net Income		$	23,175	$	12,392
Per Share of Common Stock
Basic earnings		$	0.45	$	0.24
Diluted earnings		0.45		0.24
Dividends		0.125		0.125

(1) The Company adopted ASU 2016-13 as of December 31, 2020. Prior year periods have not been restated.

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)


	For the Three Months Ended March 31,
(in thousands)		2021		2020

Net Income		$	23,175	$	12,392
Other comprehensive income, net of tax:
Unrealized (losses) gains on securities available for sale		(13,135)		7,284
Reclassification for securities gains included in net income		—		(254)
Unrealized gains (losses) on derivatives		47		(337)

Other comprehensive (loss) income		(13,088)		6,693
Total Comprehensive Income		$	10,087	$	19,085

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended March 31, 2021 and 2020


(in thousands, except per share data)	Common Stock		Retained Earnings (1)		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total

January 1, 2020	$	560,263	$	162,752	$	—	$	2,248	$	725,263


Net income	—		12,392		—		—		12,392
Other comprehensive income, net of tax	—		—		—		6,693		6,693
Treasury stock	—		—		(1,452)		—		(1,452)

Stock based compensation	847		—		—		—		847
Retirement of restricted stock	(457)		—		—		—		(457)

Cash dividends on common stock of $0.125 per share	—		(6,364)		—		—		(6,364)
March 31, 2020	560,653		168,780		(1,452)		8,941		736,922

January 1, 2021	$	562,421	$	191,418	$	(1,452)	$	11,397	$	763,784


Net income	—		23,175		—		—		23,175
Other comprehensive loss, net of tax	—		—		—		(13,088)		(13,088)


Stock based compensation	1,206		—		—		—		1,206
Retirement of restricted stock	(656)		—		—		—		(656)
Exercise of stock options	13		—		—		—		13
Cash dividends on common stock of $0.125 per share	—		(6,369)		—		—		(6,369)
March 31, 2021	$	562,984	$	208,224	$	(1,452)	$	(1,691)	$	768,065

(1) The Company adopted ASU 2016-13 at December 31, 2020, effective January 1, 2020, adjusting Retained Earnings by a negative $3,395. Retained earnings for the three months ended March 31, 2020 have not been restated.

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


	For the Three Months Ended March 31,
(in thousands)	2021		2020
Cash Flows from Operating Activities:
Net income	$	23,175	$	12,392
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums, discounts and deferred loan fees and costs	(1,497)		1,109
Depreciation and amortization	1,040		855
Amortization of intangible assets	226		265
Amortization of operating lease right-of-use assets	682		661
Provision for credit losses	(2,642)		9,223
Loans originated for sale	(16,905)		(14,634)
Proceeds from sales of loans held for sale	17,718		13,694
Gains on sales of securities	—		(342)
Change in market value of equity securities	144		653

Gains on sales of loans held for sale	(708)		(415)
(Gains) losses on other real estate and other repossessed assets	—		(86)
Losses on sales of premises and equipment	—		14
Long-term debt prepayment penalty	—		356
Stock-based compensation	1,206		847

Excess tax deficiencies	(88)		(113)
Decrease (increase) in other assets	26,337		(64,307)
(Decrease) increase in other liabilities	(18,687)		64,225
Net Cash Provided by Operating Activities	30,001		24,397
Cash Flows from Investing Activities:

Proceeds from repayments and maturities of available for sale securities	55,314		70,134
Proceeds from repayments and maturities of held to maturity securities	9,561		8,076

Proceeds from sales of available for sale securities	—		94,696
Purchase of available for sale securities	(188,321)		(213,062)
Purchase of held to maturity securities	(3,968)		—
Purchase of equity securities	(40)		(1,082)


Proceeds from redemptions of Federal Home Loan Bank stock	11,251		41,450
Purchases of Federal Home Loan Bank stock	(10,044)		(47,520)
Net increase in loans	(84,897)		(191,014)
Proceeds from sales of other real estate and repossessed assets	—		649

Purchases of premises and equipment	(1,714)		(1,605)
Net Cash Used in Investing Activities	(212,858)		(239,278)
Cash Flows from Financing Activities:
Net increase in deposits	179,458		161,448
(Decrease) increase in federal funds purchased and securities sold under agreements to repurchase	(57,561)		90,427

Repayments of other borrowings	—		(25,456)
Purchase of treasury stock	—		(1,452)
Exercise of stock options	13		—
Retirement of restricted stock	(656)		(457)
Dividends paid	(6,369)		(6,364)
Net Cash Provided by Financing Activities	114,885		218,146
Net (decrease) increase in cash and cash equivalents	(67,972)		3,265
Cash and cash equivalents, beginning of period	270,090		282,371
Cash and cash equivalents, end of period	$	202,118	$	285,636

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited) (Continued)


	For the Three Months Ended March 31,
(in thousands)	2021		2020
Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes	$	9,035	$	368
Cash paid during the period for interest	8,273		12,973
Transfer of loans into other repossessed assets and other real estate owned	—		393


Right-of-use assets obtained in exchange for new lease liabilities	109		—

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 – Significant Accounting Policies

Basis of Presentation

This quarterly report presents the consolidated financial statements of Lakeland Bancorp, Inc. and its subsidiaries, including Lakeland Bank (“Lakeland”) and Lakeland’s wholly owned subsidiaries (collectively, the “Company”). The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and predominant practices within the banking industry. The Company’s unaudited interim financial statements reflect all adjustments, such as normal recurring accruals that are in the opinion of management, necessary for the fair presentation of the results of the interim periods. The results of operations for the three months ended March 31, 2021 do not necessarily indicate the results that the Company will achieve for all of 2021.

Certain information and footnote disclosures required under U.S. GAAP have been condensed or omitted, as permitted by rules and regulations of the Securities and Exchange Commission. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.

Note 2 – Earnings Per Share

The following schedule shows the Company’s earnings per share calculations for the periods presented:


	For the Three Months Ended March 31,
(in thousands, except per share data)		2021		2020
Net income available to common shareholders		$	23,175	$	12,392
Less: earnings allocated to participating securities		216		102
Net income allocated to common shareholders		$	22,959	$	12,290
Weighted average number of common shares outstanding - basic		50,576		50,586
Share-based plans		204		142
Weighted average number of common shares outstanding - diluted		50,780		50,728
Basic earnings per share		$	0.45	$	0.24
Diluted earnings per share		$	0.45	$	0.24

There were no antidilutive options to purchase common stock excluded from the computation for the three months ended March 31, 2021 and 2020.

Note 3 – Investment Securities

The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's available for sale securities are as follows:


	March 31, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. Treasury and U.S. government agencies	$	92,940	$	1,154	$	(1,061)	$	—	$	93,033
Mortgage-backed securities, residential	326,820		2,589		(5,419)		—		323,990
Collateralized mortgage obligations, residential	179,400		4,296		(188)		—		183,508
Mortgage-backed securities, multifamily	1,941		—		(100)		—		1,841
Collateralized mortgage obligations, multifamily	34,108		1,099		(46)		—		35,161
Asset-backed securities	40,327		8		(148)		—		40,187
Obligations of states and political subdivisions	260,108		1,872		(6,848)		(10)		255,122
Debt securities	35,055		691		(60)		(134)		35,552
Total	$	970,699	$	11,709	$	(13,870)	$	(144)	$	968,394

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	December 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. Treasury and U.S. government agencies	$	63,868	$	1,447	$	(313)	$	—	$	65,002
Mortgage-backed securities, residential	224,978		3,718		(540)		—		228,156
Collateralized mortgage obligations, residential	204,093		4,967		(22)		—		209,038
Mortgage-backed securities, multifamily	1,944		—		—		—		1,944
Collateralized mortgage obligations, multifamily	39,628		1,909		(2)		—		41,535
Asset-backed securities	40,915		—		(225)		—		40,690
Obligations of states and political subdivisions	228,790		5,149		(228)		(1)		233,710
Debt securities	35,056		616		—		(1)		35,671
Total	$	839,272	$	17,806	$	(1,330)	$	(2)	$	855,746

The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's held to maturity investment securities are as follows:


	March 31, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. government agencies	$	25,453	$	604	$	—	$	—	$	26,057
Mortgage-backed securities, residential	36,965		1,193		(271)		—		37,887
Collateralized mortgage obligations, residential	11,437		417		—		—		11,854
Mortgage-backed securities, multifamily	693		37		—		—		730

Obligations of states and political subdivisions	10,446		241		—		—		10,687

Total	$	84,994	$	2,492	$	(271)	$	—	$	87,215


	December 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. government agencies	$	25,565	$	779	$	—	$	—	$	26,344
Mortgage-backed securities, residential	39,276		1,469		(12)		—		40,733
Collateralized mortgage obligations, residential	14,590		532		—		—		15,122
Mortgage-backed securities, multifamily	705		54		—		—		759

Obligations of states and political subdivisions	10,630		280		—		—		10,910

	$	90,766	$	3,114	$	(12)	$	—	$	93,868

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The following table lists contractual maturities of investment securities classified as available for sale and held to maturity as of March 31, 2021. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available for Sale				Held to Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	20,779	$	21,049	$	9,425	$	9,450
Due after one year through five years	53,784		55,207		20,950		21,673
Due after five years through ten years	63,139		64,336		3,017		3,068
Due after ten years	250,401		243,115		2,507		2,553
	388,103		383,707		35,899		36,744
Mortgage-backed and asset-backed securities	582,596		584,687		49,095		50,471
Total securities	$	970,699	$	968,394	$	84,994	$	87,215

For the three months ended March 31, 2021, there were no sales of available-for-sale securities. There were proceeds from sales of available-for-sale securities of $94.7 million for the three months ended March 31, 2020 with gross gains on sales of securities of $569,000 and gross losses on sales of securities of $227,000. Gains or losses on sales of securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method.

Securities with a carrying value of approximately $617.4 million and $578.0 million at March 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.

Credit Quality Indicators

Credit ratings, which are updated monthly, are a key measure for estimating the probability of a bond's default and for monitoring credit quality on an on-going basis. For bonds other than U.S. Treasuries and bonds issued or guaranteed by U.S. government agencies, credit ratings issued by one or more nationally recognized statistical rating organization are considered in conjunction with an assessment by the Company's management. Investment grade reflects a credit quality of BBB or above.

The table below indicates the credit profile of the Company's debt securities held to maturity at amortized cost at March 31, 2021:


(in thousands)	AAA		AA		Not Rated		Total
U.S. Treasury and U.S. government agencies	$	25,453	$	—	$	—	$	25,453
Mortgage-backed securities, residential	36,965		—		—		36,965
Collateralized mortgage obligations, residential	11,437		—		—		11,437
Mortgage-backed securities, multifamily	693		—		—		693

Obligations of states and political subdivisions	2,367		7,660		419		10,446

Total	$	76,915	$	7,660	$	419	$	84,994

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The following tables indicate the length of time individual securities have been in a continuous unrealized loss position for the periods presented:


March 31, 2021	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses
Available for Sale
U.S. Treasury and U.S. government agencies	$	26,117	$	805	$	16,532	$	256	9		$	42,649	$	1,061
Mortgage-backed securities, residential	215,618		5,404		4,502		15		59		220,120		5,419
Collateralized mortgage obligations, residential	19,099		188		—		—		6		19,099		188
Mortgage-backed securities, multifamily	1,841		100		—		—		1		1,841		100
Collateralized mortgage obligations, multifamily	2,131		46		—		—		1		2,131		46
Asset-backed securities	—		—		33,471		148		4		33,471		148
Obligations of states and political subdivisions	173,875		6,848		—		—		106		173,875		6,848
Debt securities	9,805		60		—		—		6		9,805		60
Total	$	448,486	$	13,451	$	54,505	$	419	$	192	$	502,991	$	13,870
Held to Maturity

Mortgage-backed securities, residential	$	5,784	$	271	$	43	—		5		$	5,827	$	271
Collateralized mortgage obligations, residential	110		—		1		—		3		111		—




Total	$	5,894	$	271	$	44	$	—	8		$	5,938	$	271


December 31, 2020	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
Available for Sale
U.S. Treasury and U.S. government agencies	$	4,966	$	29	$	17,652	$	284	6	$	22,618	$	313
Mortgage-backed securities, residential	84,137		471		5,656		69		30	89,793		540
Collateralized mortgage obligations, residential	23,858		22		—		—		7	23,858		22
Mortgage-backed securities, multifamily	1,943		—		—		—		1	1,943		—
Collateralized mortgage obligations, multifamily	2,527		2		—		—		1	2,527		2
Asset-backed securities	40,690		225		—		—		6	40,690		225
Obligations of states and political subdivisions	15,901		228		—		—		10	15,901		228

Total	$	174,022	$	977	$	23,308	$	353	61	$	197,330	$	1,330
Held to Maturity

Mortgage-backed securities, residential	$	2,561	$	12	$	—	$	—	4	$	2,561	$	12





Total	$	2,561	$	12	$	—	$	—	4	$	2,561	$	12

Equity securities at fair value

The Company has an equity securities portfolio which consists of investments in Community Reinvestment funds. The market value of the equity portfolio was $14.6 million and $14.7 million at March 31, 2021 and December 31, 2020, respectively. For the three months ended March 31, 2021 and 2020, the Company recorded no sales of equity securities. The Company recorded a market value loss on equity securities of $144,000 for the first quarter of 2021 and a market value loss on equity securities $653,000 for the first quarter of 2020. Market value gain or loss on equity securities are recorded in noninterest income.

As of March 31, 2021, the Company's investments in Community Reinvestment funds include $3.5 million that are primarily invested in community development loans that are guaranteed by the Small Business Administration (“SBA”). Because the funds are primarily guaranteed by the federal government, there are minimal changes in market value between accounting periods. These funds can be redeemed with 60 days' notice at the net asset value less unpaid management fees with the approval of the fund manager. As of March 31, 2021, the net amortized cost equaled the market value of the investment. There are no unfunded commitments related to these investments.

The Community Reinvestment funds also include $11.1 million of investment in government guaranteed loans, mortgage-backed securities, small business loans and other instruments supporting affordable housing and economic development as of March 31, 2021. The Company may redeem these funds at the net asset value calculated at the end of the current business day less any unpaid management fees. There are no restrictions on redemptions for the holdings in these investments other than the notice required by the fund manager. There are no unfunded commitments related to these investments.

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Note 4 – Loans

When the Company adopted Financial Accounting Standards Board's Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU 2016-13") for measuring credit losses, the loan portfolio segmentation was expanded to nine portfolio segments, taking into consideration common loan attributes and risk characteristics, as well as historical reporting metrics and data availability. All disclosures as of and for the three months ended March 31, 2021, and December 31, 2020, are presented in accordance with ASU 2016-13. The Company did not reclassify prior comparative financial periods and has presented those disclosures under previously applicable U.S. GAAP.

The following sets forth the composition of the Company’s loan portfolio:


(in thousands)	March 31, 2021		December 31, 2020
Non owner occupied commercial	$	2,375,024	$	2,398,946
Owner occupied commercial	857,506		827,092
Multifamily	858,168		813,225
Non owner occupied residential	195,534		200,229
Commercial, industrial and other	740,566		718,189
Construction	291,252		266,883
Equipment finance	119,428		116,690
Residential mortgage	385,778		377,380
Home equity and consumer	285,690		302,598
Total	$	6,108,946	$	6,021,232

Loans are recognized at amortized cost, which includes principal balance and net deferred loan fees and costs. The Company elected to exclude accrued interest receivable from amortized cost. Accrued interest receivable is reported separately in the Consolidated Balance Sheets and totaled $15.5 million at March 31, 2021 and $16.1 million at December 31, 2020. Loan origination fees and certain direct loan origination costs are deferred and the net fee or cost is recognized in interest income as an adjustment of yield. Net deferred loan fees are included in loans by respective segment and total $12.9 million at March 31, 2021 and $10.0 million at December 31, 2020.

At March 31, 2021 and December 31, 2020 Small Business Association ("SBA") Paycheck Protection Program ("PPP") loans totaled $346.2 million and $284.6 million, respectively and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of $220,000 and $650,000, at March 31, 2021 and December 31, 2020, respectively. At March 31, 2021 and December 31, 2020, the Company had $2.22 billion and $2.28 billion of loans pledged for potential borrowings at Federal Home Loan Bank ("FHLB").

Credit Quality Indicators

Management closely and continually monitors the quality of its loans and assesses the quantitative and qualitative risks arising from the credit quality of its loans. Lakeland assigns a credit risk rating to all loans and loan commitments. The credit risk rating system has been developed by management to provide a methodology to be used by loan officers, department heads and senior management in identifying various levels of credit risk that exist within the loan portfolios. The risk rating system assists senior management in evaluating the loan portfolio and analyzing trends. In assigning risk ratings, management considers, among other things, the borrower’s ability to service the debt based on relevant information such as current financial information, historical payment experience, credit documentation, public information and current economic conditions.

Management categorizes loans and commitments into the following risk ratings:

Pass: "Pass" assets are well protected by the current net worth and paying capacity of the obligor or guarantors, if any, or by the fair value of any underlying collateral.

Watch: "Watch" assets require more than the usual amount of monitoring due to declining earnings, strained cash flow, increasing leverage and/or weakening market. These borrowers generally have limited additional debt capacity and modest coverage and average or below average asset quality, margins and market share. Any residential or consumer loan currently on deferment in accordance with the Coronavirus Aid, Relief and Economic Security ("CARES") Act or the interagency statement issued by bank regulatory agencies has been classified by management as watch or worse.

Special Mention: "Special mention" assets exhibit identifiable credit weakness, which if not checked or corrected could weaken the loan quality or inadequately protect the bank’s credit position at some future date.

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Substandard: "Substandard" assets are inadequately protected by the current sound worth and paying capacity of the obligors or of the collateral pledged, if any. A substandard loan has a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt.

Doubtful: "Doubtful" assets that exhibit all of the weaknesses inherent in substandard loans, but have the added characteristics that the weaknesses make collection or liquidation in full improbable on the basis of existing facts.

Loss: “Loss” is a rating for loans or portions of loans that are considered uncollectible and of such little value that their continuance as bankable loans is not warranted.

The following table presents the risk category of loans by class of loan and vintage as of March 31, 2021:


	Term Loans by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term	Total
Non owner occupied commercial
Pass	$	49,980	$	555,372	$	363,885	$	202,094	$	248,758	$	681,691	$	44,550	2,115	$	2,148,445
Watch	—		200		6,531		11,985		5,880		63,270		247		—	88,113
Special mention	—		3,384		3,112		8,343		9,047		22,541		80		—	46,507
Substandard	—		901		—		2,658		15,847		72,523		—		30	91,959
Total	49,980		559,857		373,528		225,080		279,532		840,025		44,877		2,145	2,375,024
Owner occupied commercial
Pass	61,379		118,138		80,308		78,770		81,400		299,935		8,217		175	728,322
Watch	—		1,574		22,907		904		—		22,279		800		—	48,464
Special mention	—		—		2,211		923		109		41,790		—		—	45,033
Substandard	—		—		—		2,995		1,971		30,666		44		11	35,687
Total	61,379		119,712		105,426		83,592		83,480		394,670		9,061		186	857,506
Multifamily
Pass	34,418		253,176		59,642		103,577		85,258		260,562		20,931		—	817,564
Watch	—		—		—		600		3,164		8,413		—		—	12,177
Special mention	—		9,731		—		—		2,399		1,113		—		—	13,243
Substandard	—		—		5,483		—		—		9,701		—		—	15,184
Total	34,418		262,907		65,125		104,177		90,821		279,789		20,931		—	858,168
Non owner occupied residential
Pass	7,245		23,958		23,965		24,219		23,282		68,676		8,076		823	180,244
Watch	—		—		299		—		1,074		5,361		—		—	6,734
Special mention	—		—		496		916		498		941		515		—	3,366
Substandard	—		746		512		1,227		1,166		1,539		—		—	5,190
Total	7,245		24,704		25,272		26,362		26,020		76,517		8,591		823	195,534
Commercial, industrial and other
Pass	130,518		236,340		74,724		14,621		5,978		40,974		193,086		408	696,649
Watch	—		285		592		132		1,579		603		11,776		—	14,967
Special mention	—		—		—		788		651		2,534		4,684		—	8,657
Substandard	—		7,307		50		2,643		1,533		2,013		4,984		1,763	20,293
Total	130,518		243,932		75,366		18,184		9,741		46,124		214,530		2,171	740,566
Construction
Pass	17,527		88,821		82,098		48,338		24,190		5,332		330		—	266,636
Watch	—		—		—		2,179		12,866		—		—		—	15,045
Special mention	—		—		—		—		8,853		—		—		—	8,853
Substandard	—		—		—		—		203		515		—		—	718
Total	17,527		88,821		82,098		50,517		46,112		5,847		330		—	291,252
Equipment finance
Pass	14,135		38,700		38,555		17,934		7,314		2,491		—		—	119,129
Watch	—		—		—		—		—		—		—		—	—
Special mention	—		—		—		—		—		—		—		—	—
Substandard	—		—		98		107		94		—		—		—	299
Total	14,135		38,700		38,653		18,041		7,408		2,491		—		—	119,428

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	Term Loans by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term		Total
Residential mortgage
Pass	43,620		121,557		35,159		32,159		14,558		136,258		—		—		383,311
Watch	—		—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		51		230		740		1,446		—		—		2,467
Total	43,620		121,557		35,210		32,389		15,298		137,704		—		—		385,778
Consumer
Pass	3,764		15,063		8,664		6,846		4,803		33,285		210,525		—		282,950
Watch	—		—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		33		56		130		1		2,038		261		221		2,740
Total	3,764		15,096		8,720		6,976		4,804		35,323		210,786		221		285,690
Total loans	$	362,586	$	1,475,286	$	809,398	$	565,318	$	563,216	$	1,818,490	$	509,106	$	5,546	$	6,108,946

The following table presents the risk category of loans by class of loan and vintage as of December 31, 2020:


	Term Loans by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term	Total
Non owner occupied commercial
Pass	$	570,665	$	376,681	$	217,931	$	251,751	$	187,605	$	509,573	$	50,071	2,246	$	2,166,523
Watch	770		638		8,498		5,936		19,579		47,680		315		—	83,416
Special mention	3,400		3,131		8,377		9,115		19,936		7,894		2,895		—	54,748
Substandard	—		—		2,809		15,903		14,844		60,703		—		—	94,259
Total	574,835		380,450		237,615		282,705		241,964		625,850		53,281		2,246	2,398,946
Owner occupied commercial
Pass	116,512		76,224		80,244		81,215		62,118		245,330		11,072		179	672,894
Watch	11,347		22,932		411		3,651		8,038		23,612		673		—	70,664
Special mention	—		2,218		929		113		4,317		38,638		—		—	46,215
Substandard	434		16		3,038		641		5,770		27,376		44		—	37,319
Total	128,293		101,390		84,622		85,620		80,243		334,956		11,789		179	827,092
Multifamily
Pass	251,708		59,694		85,748		93,368		117,155		145,786		21,713		—	775,172
Watch	—		—		600		—		—		8,472		—		—	9,072
Special mention	9,781		—		—		2,399		—		1,124		—		—	13,304
Substandard	—		5,481		—		—		9,512		684		—		—	15,677
Total	261,489		65,175		86,348		95,767		126,667		156,066		21,713		—	813,225
Non owner occupied residential
Pass	23,506		24,378		27,752		24,344		21,488		53,200		8,180		171	183,019
Watch	—		300		—		1,174		—		5,757		—		—	7,231
Special mention	—		496		1,199		392		293		656		655		—	3,691
Substandard	876		512		1,200		1,295		692		1,713		—		—	6,288
Total	24,382		25,686		30,151		27,205		22,473		61,326		8,835		171	200,229
Commercial, industrial and other
Pass	299,091		84,917		16,245		7,216		18,358		41,900		208,519		531	676,777
Watch	287		3,701		156		1,643		301		369		2,324		—	8,781
Special mention	—		—		884		764		2,275		—		4,727		—	8,650
Substandard	7,177		50		3,559		1,547		1,497		729		9,422		—	23,981
Total	306,555		88,668		20,844		11,170		22,431		42,998		224,992		531	718,189

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	Term Loans by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term		Total
Construction
Pass	56,734		77,117		69,627		29,303		7,681		328		2,190		—		242,980
Watch	—		—		2,183		11,959		—		—		—		—		14,142
Special mention	—		—		—		8,321		—		—		—		—		8,321
Substandard	—		—		—		206		719		515		—		—		1,440
Total	56,734		77,117		71,810		49,789		8,400		843		2,190		—		266,883
Equipment finance
Pass	41,528		41,717		20,697		8,834		3,162		426		—		—		116,364
Watch	—		—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		98		88		74		64		2		—		—		326
Total	41,528		41,815		20,785		8,908		3,226		428		—		—		116,690
Residential mortgage
Pass	127,336		43,910		34,252		17,548		12,108		139,616		—		—		374,770
Watch	—		—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		52		233		1,015		—		1,310		—		—		2,610
Total	127,336		43,962		34,485		18,563		12,108		140,926		—		—		377,380
Consumer
Pass	15,999		9,844		7,490		5,333		4,632		31,861		224,549		166		299,874
Watch	—		—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—		—
Substandard	33		57		31		2		—		2,208		263		130		2,724
Total	16,032		9,901		7,521		5,335		4,632		34,069		224,812		296		302,598
Total loans	$	1,537,184	$	834,164	$	594,181	$	585,062	$	522,144	$	1,397,462	$	547,612	$	3,423	$	6,021,232

Past Due and Non-accrual Loans

Loans are considered past due if required principal and interest payments have not been received as of the date such payments were contractually due. A loan is generally considered non-performing when it is placed on non-accrual status. A loan is generally placed on non-accrual status when it becomes 90 days past due if such loan has been identified as presenting uncertainty with respect to the collectability of interest and principal. A loan past due 90 days or more may remain on accruing status if such loan is both well secured and in the process of collection.

In the absence of other intervening factors, loans granted payment deferrals related to COVID-19 are not reported as past due or placed on non-accrual status provided the borrowers have met the criteria in the CARES Act or otherwise have met the criteria included in an interagency statement issued by bank regulatory agencies.

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The following tables present the payment status of the recorded investment in past due loans as of the periods noted, by class of loans.


March 31, 2021			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,362,259	$	2,640	$	396	$	9,729	$	12,765	$	2,375,024
Owner occupied commercial	845,931		2,479		1,454		7,642		11,575		857,506
Multifamily	857,961		207		—		—		207		858,168
Non-owner occupied residential	192,199		1,236		1,122		977		3,335		195,534
Commercial, industrial and other	737,642		177		875		1,872		2,924		740,566
Construction	290,737		—		—		515		515		291,252
Equipment finance	118,113		1,114		22		179		1,315		119,428
Residential mortgage	382,994		1,357		—		1,427		2,784		385,778
Consumer	282,534		1,640		—		1,516		3,156		285,690
Total	$	6,070,370	$	10,850	$	3,869	$	23,857	$	38,576	$	6,108,946


December 31, 2020			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,384,233	$	1,256	$	306	$	13,151	$	14,713	$	2,398,946
Owner occupied commercial	811,408		2,759		350		12,575		15,684		827,092
Multifamily	812,597		208		—		420		628		813,225
Non-owner occupied residential	197,802		482		294		1,651		2,427		200,229
Commercial, industrial and other	716,337		125		—		1,727		1,852		718,189
Construction	265,649		—		—		1,234		1,234		266,883
Equipment finance	115,124		1,338		98		130		1,566		116,690
Residential mortgage	374,370		1,046		156		1,808		3,010		377,380
Consumer	300,127		1,041		73		1,357		2,471		302,598
Total	$	5,977,647	$	8,255	$	1,277	$	34,053	$	43,585	$	6,021,232

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The following tables present information on non-accrual loans, including PCD loans on non-accrual, at March 31, 2021 and December 31, 2020:


March 31, 2021
(in thousands)	Non-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans >= 90 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	$	12,835	$	—	$	—	$	11,193
Owner occupied commercial	8,797		—		—		6,972
Multifamily	201		—		—		—
Non-owner occupied residential	1,417		—		—		852
Commercial, industrial and other	2,252		—		—		1,361
Construction	718		—		—		515
Equipment finance	300		—		—		—
Residential mortgage	2,328		—		—		740
Consumer	2,277		—		—		—
Total	$	31,125	$	—	$	—	$	21,633


December 31, 2020
(in thousands)	Non-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans >= 90 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	$	16,537	$	—	$	—	$	14,719
Owner occupied commercial	14,271		—		—		12,371
Multifamily	626		—		—		—
Non-owner occupied residential	2,217		—		—		1,580
Commercial, industrial and other	2,633		—		—		1,418
Construction	1,440		—		—		1,234
Equipment finance	327		—		—		—
Residential mortgage	2,469		—		—		1,015
Consumer	2,243		—		1		—
Total	$	42,763	$	—	$	1	$	32,337

At March 31, 2021, there were no loans that were past due more than 89 days and still accruing and at December 31, 2020, one loan with a recorded investment of $1,000 was past due more than 89 days and still accruing. The Company had $1.6 million and $1.7 million in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure at March 31, 2021 and December 31, 2020, respectively.

Troubled Debt Restructurings

Loans are classified as troubled debt restructured loans ("TDR") in cases where borrowers experience financial difficulties and Lakeland makes certain concessionary modifications to contractual terms. Restructured loans typically involve a modification of terms such as a reduction of the stated interest rate, a moratorium of principal payments and/or an extension of the maturity date at a stated interest rate lower than the current market rate of a new loan with similar risk.

At March 31, 2021 and December 31, 2020, TDRs totaled $4.9 million and $5.0 million, respectively. Accruing TDRs totaled $3.8 million and non-accrual TDRs totaled $1.1 million at March 31, 2021. Accruing TDRs and non-accrual TDRs totaled $3.9 million and $1.1 million, respectively, at December 31, 2020. There were no loans that were restructured during the three months ended March 31, 2021 or 2020. There were no restructured loans that subsequently defaulted in the first quarter of 2021 and in the first quarter of 2020, there were two consumer loans with a recorded investment of $83,000 that were restructured in the previous 12 months and subsequently defaulted.

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The CARES Act provided relief from TDR classification for certain loan modifications related to the COVID-19 pandemic beginning March 1, 2020 through the earlier of 60 days after the end of the pandemic or December 31, 2020. Additionally, banking regulatory agencies issued interagency guidance that COVID-19 related short-term modifications (i.e., six months or less) granted to borrowers that were current as of the loan modification program implementation date do not need to be considered TDRs. In December 2020, the CAA extended this guidance to modifications made until the earlier of January 1, 2022 or 60 days after the end of the COVID-19 national emergency. The Company elected this provision of the CARES Act and excluded modified loans that met the required guidelines for relief from its TDR classification. At March 31, 2021, no loans were on COVID-related deferrals as the remaining 90-day loan deferments expired and borrowers began paying their pre-deferral loan payments in the first quarter of 2021. For most commercial loans, borrowers are paying their pre-deferral loan payments plus an additional monthly amount to catch up on the payments that were deferred. None of these modifications were considered TDRs.

Note 5 - Allowance for Credit Losses

The Company adopted the ASU 2016-13 standard, which requires the measurement of expected credit losses for financial assets measured at amortized cost, including loans and certain off-balance-sheet credit exposures. See Note 1 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for a description of the adoption of ASU 2016-13 and the Company's allowance methodology. The Company recorded an increase in the allowance for credit losses on loans of $6.7 million effective January 1, 2020. Prior year disclosures have not been restated.

Under the standard, the Company's methodology for determining the allowance for credit losses on loans is based upon key assumptions, including the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. At March 31, 2021, loans totaling $6.08 billion were evaluated collectively and the allowance on these balances totaled $66.0 million and loans evaluated on an individual basis totaled $30.9 million with the specific allocations of the allowance for credit losses totaling $1.2 million.

Allowance for Credit Losses - Loans

The allowance for credit losses on loans is summarized in the following table:


	For the Three Months Ended March 31,
(in thousands)		2021		2020
Balance at beginning of the period		$	71,124	$	40,003

Charge-offs		(1,270)		(483)
Recoveries		206		141
Net (charge-offs) recoveries		(1,064)		(342)
Provision for credit loss - loans		(2,808)		9,223
Balance at end of the period		$	67,252	$	48,884

Accrued interest receivable on loans, reported as a component of accrued interest receivable on the consolidated balance sheet, totaled $15.5 million at March 31, 2021 and $16.1 million at December 31, 2020. The Company made the election to exclude accrued interest receivable from the estimate of credit losses.

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The following table details activity in the allowance for credit losses by portfolio segment for the years ended March 31, 2021 and 2020:


(in thousands)	Balance at 12/31/2020		Charge-offs		Recoveries		Provision for Credit Loss - Loans		Balance at 3/31/2021
Non-owner occupied commercial	$	25,910	$	(593)	$	1	$	(1,438)	$	23,880
Owner occupied commercial	3,955		(78)		8		118		4,003
Multifamily	7,253		—		—		255		7,508
Non-owner occupied residential	3,321		(208)		2		(232)		2,883
Commercial, industrial and other	13,665		(265)		44		(1,305)		12,139
Construction	786		—		25		318		1,129
Equipment finance	6,552		(94)		11		(205)		6,264
Residential mortgage	3,623		—		58		100		3,781
Consumer	6,059		(32)		57		(419)		5,665
Total	$	71,124	$	(1,270)	$	206	$	(2,808)	$	67,252


(in thousands)	Balance at 12/31/2019		Charge-offs		Recoveries		Provision for Credit Loss - Loans		Balance at 3/31/2020




Commercial, secured by real estate (1)	$	28,950	$	(169)	$	26	$	5,986	34,793
Commercial, industrial and other	3,289		—		30		2,170		5,489
Construction	2,672		—		32		640		3,344
Equipment finance	957		(84)		14		370		1,257
Residential mortgage	1,725		(116)		20		(29)		1,600
Consumer	2,410		(114)		19		86		2,401
Total	$	40,003	$	(483)	$	141	$	9,223	$	48,884

(1) With the adoption of ASU 2016-13 in 2020, the Company expanded its portfolio segments.

The following tables present the recorded investment in loans by portfolio segment and the related allowance for credit losses at March 31, 2021 and December 31, 2020:


March 31, 2021	Loans								Allowance for Credit Losses
(in thousands)	Individually evaluated		Collectively evaluated		Acquired with deteriorated credit quality		Total		Individually evaluated		Collectively evaluated		Total
Non-owner occupied commercial	$	9,605	$	2,362,334	$	3,085	$	2,375,024	351		$	23,529	$	23,880
Owner occupied commercial	11,131		845,786		589		857,506		—		4,003		4,003
Multifamily	—		858,168		—		858,168		—		7,508		7,508
Non-owner occupied residential	774		194,421		339		195,534		48		2,835		2,883
Commercial, industrial and other	1,370		737,833		1,363		740,566		810		11,329		12,139
Construction	515		290,737		—		291,252		—		1,129		1,129
Equipment finance	—		119,428		—		119,428		—		6,264		6,264
Residential mortgage	1,483		384,161		134		385,778		—		3,781		3,781
Consumer	—		285,201		489		285,690		30		5,635		5,665
Total loans	$	24,878	$	6,078,069	$	5,999	$	6,108,946	$	1,239	$	66,013	$	67,252


December 31, 2020	Loans								Allowance for Credit Losses
(in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Acquired with deteriorated credit quality		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Non owner occupied commercial	$	12,112	$	2,382,717	$	4,117	2,398,946		$	355	$	25,555	$	25,910
Owner occupied commercial	16,547		809,935		610		827,092		96		3,859		3,955
Multifamily	—		813,225		—		813,225		—		7,253		7,253
Non owner occupied residential	1,459		198,334		436		200,229		43		3,278		3,321
Commercial, industrial and other	1,596		715,129		1,464		718,189		830		12,835		13,665
Construction	515		265,649		719		266,883		—		786		786
Equipment finance	—		116,690		—		116,690		—		6,552		6,552
Residential mortgage	1,490		375,482		408		377,380		—		3,623		3,623
Consumer	—		302,099		499		302,598		31		6,028		6,059
Total loans	$	33,719	$	5,979,260	$	8,253	$	6,021,232	$	1,355	$	69,769	$	71,124

Allowance for Credit Losses - Securities

The following table presents the activity in the allowance for credit losses for securities:


	For the Three Months Ended March 31, 2021						For the Three Months Ended March 31, 2020
(in thousands)	Available for Sale		Held to Maturity		Total		Available for Sale		Held to Maturity		Total
Beginning balance	$	2	$	—	$	2	$	—	$	—	$	—
Provision for credit loss - securities	142		—		142		—		—		—
Balance at end of the period	$	144	$	—	$	144	$	—	$	—	$	—

The Company adopted ASU 2016-13 at December 31, 2020, and recorded an increase in the allowance for credit losses on securities of $30,000 effective January 1, 2020. Prior year disclosures have not been restated.

Accrued interest receivable on securities is reported as a component of accrued interest receivable on the consolidated balance sheet and totaled $4.4 million at March 31, 2021 and $3.3 million and December 31, 2020. The Company made the election to exclude accrued interest receivable from the estimate of credit losses on securities.

Allowance for Credit Losses - Off-Balance-Sheet Exposures

The allowance for credit losses on off-balance sheet exposures is reported in other liabilities in the Consolidated Balance Sheets. The liability represents an estimate of expected credit losses arising from off balance sheet exposures such as letters of credit, guarantees and unfunded loan commitments. The process for measuring lifetime expected credit losses on these exposures is consistent with that for loans as discussed above, but is subject to an additional estimate reflecting the likelihood that funding will occur. No liability is recognized for off balance sheet credit exposures that are unconditionally cancellable by the Company. Adjustments to the liability are reported as a component of credit loss expense.

The Company adopted ASU 2016-13 at December 31, 2020, and recorded a decrease in the allowance for credit losses for off-balance-sheet exposures of $498,000 effective January 1, 2020. Prior year disclosures have not been restated.

At both March 31, 2021 and December 31, 2020, the balance of the allowance for credit losses for off-balance sheet exposures was $2.6 million. The Company recorded a provision for credit loss on off-balance-sheet exposures of $24,000 for the first quarter of 2021. In the first quarter of 2020, the Company recorded a provision for unfunded lending commitments of $210,000 in other noninterest expense.

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Note 6 – Leases

The Company leases certain premises and equipment under operating leases. Portions of certain properties are subleased for terms extending through 2027. At March 31, 2021, the Company had lease liabilities totaling $17.6 million and right-of-use assets totaling $16.2 million related to these leases. At December 31, 2020, the Company had lease liabilities totaling $18.2 million and right-of-use assets totaling $16.8 million. The calculated amount of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum lease payments. The Company's lease agreements often include one or more options to renew at the Company's discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. The Company uses its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

For the three months ended March 31, 2021, the weighted average remaining lease term for operating leases was 9.60 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.42%.

As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities. Lease costs were as follows:


	For the Three Months Ended March 31,
(in thousands)		2021		2020
Operating lease cost		$	829	$	828
Short-term lease cost		—		—
Variable lease cost		22		32
Sublease income		(31)		(31)
Net lease cost		$	820	$	829

The table below presents other information on the Company's operating leases for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
(in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	719	$	689
Right-of-use asset obtained in exchange for new operating lease liabilities	109		—

There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the three months ended March 31, 2021. At March 31, 2021, the Company had no leases that had not yet commenced.

A maturity analysis of operating lease liabilities and a reconciliation of the undiscounted cash flows to the total operating lease liability at March 31, 2021 are as follows:


(in thousands)
Within one year	$	3,277
After one year but within three years	5,266
After three years but within five years	4,205
After five years	8,255
Total undiscounted cash flows	21,003
Discount on cash flows	(3,429)
Total lease liability	$	17,574

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Note 7 - Deposits

The following table sets forth the details of total deposits:


(dollars in thousands)	March 31, 2021				December 31, 2020

Noninterest-bearing demand	$	1,631,942	24.6	%	$	1,510,224	23.4	%
Interest-bearing checking	2,092,022		31.5	%	2,057,052		31.9	%
Money market	1,327,612		20.0	%	1,225,890		19.0	%
Savings	630,280		9.5	%	584,361		9.1	%
Certificates of deposit $250 thousand and under	794,283		12.0	%	895,056		13.8	%
Certificates of deposit over $250 thousand	159,087		2.4	%	183,200		2.8	%
Total deposits	$	6,635,226	100.0	%	$	6,455,783	100.0	%

At March 31, 2021, certificates of deposit totaling $195.2 million were obtained through brokers, while $236.7 million of certificates of deposit at December 31, 2020 were obtained through brokers.

Note 8 – Borrowings

Overnight and Short-Term Borrowings

At March 31, 2021 and December 31, 2020, the Company had overnight and short-term borrowings from the FHLB totaling $50.0 million and $100.0 million, respectively. In addition, there were no overnight and short-term borrowings from correspondent banks at either March 31, 2021 or December 31, 2020. At March 31, 2021, Lakeland had overnight and short-term federal funds lines available to borrow up to $215.0 million from correspondent banks. Lakeland may also borrow from the discount window of the Federal Reserve Bank of New York based on the market value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New York as of March 31, 2021 or December 31, 2020.

Other short-term borrowings at March 31, 2021 and December 31, 2020 consisted of short-term securities sold under agreements to repurchase of $62.0 million and $69.6 million, respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts with our customers. As of March 31, 2021, the Company had $72.7 million in agency and mortgage-backed securities pledged for its securities sold under agreements to repurchase.

At times the market values of securities collateralizing our securities sold under agreements to repurchase may decline due to changes in interest rates and may necessitate our lenders to issue a “margin call” which requires Lakeland to pledge additional collateral to meet that margin call.

FHLB Advances

Advances from the FHLB totaled $25.0 million at both March 31, 2021 and December 31, 2020, with a weighted average interest rate of 0.77% and maturity in 2025. These advances were collateralized by first mortgage loans. The advances have prepayment penalties. In the first quarter of 2020, the Company repaid two advances totaling $10.0 million and recorded $356,000 in long-term debt prepayment fees.

Note 9 – Share-Based Compensation

The Company's 2018 Omnibus Equity Incentive Plan (the "Plan") authorizes the granting of incentive stock options, supplemental stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), other stock-based awards and cash-based awards to officers, employees and non-employee directors of, and consultants and advisors to, the Company and its subsidiaries.

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Restricted Stock

The following is a summary of the Company’s restricted stock activity during the three months ended March 31, 2021:


	Number of Shares	Weighted Average Price
Outstanding, January 1, 2021	23,910	$	14.77
Granted	16,028	13.72
Vested	(13,092)	16.87

Outstanding, March 31, 2021	26,846	$	13.13

In the first three months of 2021, the Company granted 16,028 shares of restricted stock to non-employee directors at a grant date fair value of $13.72 per share under the 2018 Omnibus Equity Incentive Program. The restricted stock vests one year from the date it was granted. Compensation expense on this restricted stock is expected to be $220,000 over a one year period. In the first three months of 2020, the Company granted 13,041 shares of restricted stock to non-employee directors at a grant date fair value of $16.87 per share. The restricted stock vested one year from the date it was granted with a compensation expense of $220,000 over such period.

The Company recognized share-based compensation expense on its restricted stock of $88,000 and $54,000 for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there was unrecognized compensation cost of $242,000 related to unvested restricted stock that is expected to be recognized over a weighted average period of approximately 0.74 years.

Restricted Stock Units

The following is a summary of the Company’s RSU activity during the three months ended March 31, 2021:


	Number of Shares	Weighted Average Price
Outstanding, January 1, 2021	372,552	$	16.63
Granted	258,154	16.22
Vested	(129,224)	18.14
Forfeited	(761)	16.03
Outstanding, March 31, 2021	500,721	$	16.03

In the first three months of 2021, the Company granted 258,154 RSUs under the 2018 Omnibus Equity Incentive Plan at a weighted average grant date fair value of $16.22 per share. These units vest within a range of two to three years. A portion of these RSUs will vest subject to certain performance conditions in the applicable restricted stock unit agreement. There are also certain provisions in the compensation program which state that if a recipient of the RSUs reaches a certain age and years of service, the person has effectively earned a portion of the RSUs at that time. Compensation expense on RSUs issued in the first three months of 2021 is expected to average approximately $1.4 million per year over a three-year period. In the first three months of 2020, the Company granted 169,169 RSUs under the Company’s 2018 Omnibus Equity Incentive Plan at a weighted average grant date fair value of $15.56 per share. Compensation expense on these RSUs is expected to average approximately $877,000 per year over a three-year period.

The Company recognized share based compensation expense of $1.1 million and $794,000 on RSUs for the three months ended March 31, 2021 and 2020, respectively. Unrecognized compensation expense related to RSUs was approximately $5.5 million as of March 31, 2021, and that cost is expected to be recognized over a period of 1.7 years.

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Stock Options

A summary of the activity under the Company’s stock option plans as of March 31, 2021 is as follows:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2021	2,764	$	6.94	1.07	$	15,934

Exercised	(1,757)	7.13


Outstanding, March 31, 2021	1,007	$	6.61	1.19	$	10,905
Options exercisable at March 31, 2021	1,007	$	6.61	1.19	$	10,905

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, which is the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options.

There were no stock option grants in the first three months of 2021 or 2020. The 1,757 stock options exercised during the first three months of 2021 resulted in $13,000 in cash receipts. No stock options were exercised during the first three months of 2020. There was no unrecognized compensation expense related to unvested stock options as of March 31, 2021.

Note 10 – Revenue Recognition

The Company’s primary source of revenue is interest income generated from loans and investment securities. Interest income is recognized according to the terms of the financial instrument agreement over the life of the loan or investment security unless it is determined that the counterparty is unable to continue making interest payments. Interest income also includes prepaid interest fees from commercial customers, which approximates the interest foregone on the balance of the loan prepaid.

The Company’s additional source of income, also referred to as noninterest income, is generated from deposit related fees, interchange fees, loan fees, merchant fees, loan sales, investment services and other miscellaneous income and is largely based on contracts with customers. In these cases, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The Company considers a customer to be any party to which the Company will provide goods or services that are an output of the Company’s ordinary activities in exchange for consideration. There is little seasonality with regards to revenue from contracts with customers and all inter-company revenue is eliminated when the Company’s financial statements are consolidated.

Generally, the Company enters into contracts with customers that are short-term in nature where the performance obligations are fulfilled and payment is processed at the same time. Such examples include revenue related to merchant fees, interchange fees and investment services income. In addition, revenue generated from existing customer relationships such as deposit accounts are also considered short-term in nature, because the relationship may be terminated at any time and payment is processed at the time performance obligations are fulfilled. As a result, the Company does not have contract assets, contract liabilities or related receivable accounts for contracts with customers. In cases where collectability is a concern, the Company does not record revenue.

Generally, the pricing of transactions between the Company and each customer is either (i) established within a legally enforceable contract between the two parties, as is the case with loan sales, or (ii) disclosed to the customer at a specific point in time, as is the case when a deposit account is opened or before a new loan is underwritten. Fees are usually fixed at a specific amount or as a percentage of a transaction amount. No judgment or estimates by management are required to record revenue related to these transactions and pricing is clearly identified within these contracts.

The Company primarily operates in one geographic region, Northern and Central New Jersey and contiguous areas. Therefore, all significant operating decisions are based upon analysis of the Company as one operating segment or unit.

We disaggregate our revenue from contracts with customers by contract-type and timing of revenue recognition, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Noninterest income not generated from customers during the Company’s ordinary activities primarily relates to income from bank owned life insurance, gains/losses on the sale of investment securities, gains/losses on the sale of other real estate owned, gains/losses on the sale of property, plant and equipment and mortgage servicing rights.

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The following table sets forth the components of noninterest income for the three months ended March 31, 2021 and 2020:


	For the Three Months Ended March 31,
(in thousands)		2021		2020

Deposit Related Fees and Charges:
Debit card interchange income		$	1,410	$	1,223
Overdraft charges		587		953
ATM service charges		143		167
Demand deposit fees and charges		141		134
Savings service charges		15		23
Total		2,296		2,500
Commissions and Fees:
Loan fees		507		340
Wire transfer charges		375		308
Investment services income		363		523
Merchant fees		201		248
Commissions from sales of checks		78		83
Safe deposit income		79		86
Other income		47		51
Total		1,650		1,639
Gains on sales of loans		708		415
Other Income:
Gains on customer swap transactions		562		2,843
Title insurance income		13		(4)
Other income		82		97
Total		657		2,936
Revenue not from contracts with customers		448		521
Total Noninterest Income		$	5,759	$	8,011
Timing of Revenue Recognition:
Products and services transferred at a point in time		5,292		7,471
Products and services transferred over time		19		19
Revenue not from contracts with customers		448		521
Total Noninterest Income		$	5,759	$	8,011

Note 11 – Comprehensive Income

The components of other comprehensive income are as follows:


	For the Three Months Ended
	March 31, 2021						March 31, 2020
(in thousands)	Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount		Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount
Net unrealized gains (losses) on available for sale securities:
Net unrealized holding gains arising during period	$	(18,637)	$	5,502	$	(13,135)	$	9,796	$	(2,512)	$	7,284
Reclassification adjustment for net gains arising during the period	—		—		—		(342)		88		(254)
Net unrealized (losses) gains	(18,637)		5,502		(13,135)		9,454		(2,424)		7,030
Unrealized gains (losses) on derivatives	67		(20)		47		(478)		141		(337)

Other comprehensive (losses) income, net	$	(18,570)	$	5,482	$	(13,088)	$	8,976	$	(2,283)	$	6,693

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The following tables show the changes in the balances of each of the components of other comprehensive income for the periods presented, net of tax:


	For the Three Months Ended March 31, 2021								For the Three Months Ended March 31, 2020
(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Unrealized Gains on Derivatives		Pension Items		Total		Unrealized Gains on Available for Sale Securities		Unrealized Gains (Losses) on Derivatives		Pension Items		Total

Beginning balance	$	11,402	$	25	$	(30)	$	11,397	$	1,936	$	317	$	(5)	$	2,248
Other comprehensive (loss) income before classifications	(13,135)		47		—		(13,088)		7,284		(337)		—		6,947
Amounts reclassified from accumulated other comprehensive income	—		—		—		—		(254)		—		—		(254)
Net current period other comprehensive (loss) income	(13,135)		47		—		(13,088)		7,030		(337)		—		6,693
Ending balance	$	(1,733)	$	72	$	(30)	$	(1,691)	$	8,966	$	(20)	$	(5)	$	8,941

Note 12 – Derivatives

Lakeland is a party to interest rate derivatives that are not designated as hedging instruments. Under a program, Lakeland executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Lakeland executes with a third-party financial institution, such that Lakeland minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties. Lakeland had $71.7 million and $83.2 million, respectively, in available for sale securities pledged for collateral on its interest rate swaps with financial institutions at March 31, 2021 and December 31, 2020.

In June 2016, the Company entered into two cash flow hedges in order to hedge the variable cash outflows associated with its subordinated debentures. The notional value of these hedges was $30.0 million. The Company’s objectives in using cash flow hedges are to add stability to interest expense and to manage its exposure to interest rate movements. The Company used interest rate swaps designated as cash flow hedges which involved the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In these particular hedges the Company is paying a third party an average of 1.10% in exchange for a payment at 3 month LIBOR. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2021, the Company did not record any hedge ineffectiveness. The Company recognized $65,000 of accumulated other comprehensive expense that was reclassified into interest expense for the first three quarters of 2021 and $62,000 of accumulated other comprehensive income that was reclassified into interest expense for the first quarter of 2020.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s debt. Until maturity in 2021, the Company estimates that $75,000 will be reclassified as an increase to interest expense should the rate environment remain the same.

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The following table presents summary information regarding these derivatives for the periods presented (dollars in thousands):


March 31, 2021	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
Classified in Other Assets:
3rd Party interest rate swaps	$	326,734	9.3	3.11	%	1 Mo. LIBOR + 2.20	$	14,627
Customer interest rate swaps	699,190		8.4	4.02	%	1 Mo. LIBOR + 1.96	38,098

Classified in Other Liabilities:
Customer interest rate swaps	$	326,734	9.3	3.11	%	1 Mo. LIBOR + 2.20	$	(14,627)
3rd Party interest rate swaps	699,190		8.4	4.02	%	1 Mo. LIBOR + 1.96	(38,098)
Interest rate swap (cash flow hedge)	30,000		0.3	1.10	%	3 Mo. LIBOR	(76)


December 31, 2020	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
Classified in Other Assets:
3rd Party interest rate swaps	$	73,075	9.5	3.20	%	1 Mo. LIBOR + 2.55	$	503
Customer interest rate swaps	907,069		8.7	3.79	%	1 Mo. LIBOR + 1.99	80,231

Classified in Other Liabilities:
Customer interest rate swaps	$	73,075	9.5	3.20	%	1 Mo. LIBOR + 2.55	(503)
3rd party interest rate swaps	907,069		8.7	3.79	%	1 Mo. LIBOR + 1.99	(80,231)
Interest rate swap (cash flow hedge)	30,000		0.5	1.10	%	3 Mo. LIBOR	(143)

Note 13 – Goodwill and Intangible Assets

The Company had goodwill of $156.3 million at both March 31, 2021 and December 31, 2020. The Company reviews its goodwill and intangible assets annually, on November 30, or more frequently if conditions warrant, for impairment. In testing goodwill for impairment, the Company compares the estimated fair value of its reporting unit to its carrying amount, including goodwill. The Company has determined that it has one reporting unit, Community Banking. At March 31, 2021, the Company evaluated whether it is more likely than not that the fair value of our one reporting unit is less than its carrying amount, by assessing relevant events and circumstances and concluded that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount.

The Company had core deposit intangibles of $3.1 million and $3.3 million at March 31, 2021 and December 31, 2020, respectively. Amortization of core deposit intangible totaled $226,000 and $265,000 for the first quarters of 2021 and 2020, respectively. The estimated future amortization expense for the remainder of 2021 and for each of the succeeding five years ended December 31 is as follows (in thousands):


For the Year Ended
2021	$	642
2022	711
2023	554
2024	425
2025	317
2026	210

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Note 14 – Fair Value Measurement and Fair Value of Financial Instruments

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest level priority to unobservable inputs (level 3 measurements). The following describes the three levels of fair value hierarchy:

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities; includes U.S. Treasury Notes, and other U.S. Government Agency securities that actively trade in over-the-counter markets; equity securities and mutual funds that actively trade in over-the-counter markets.

Level 2 – quoted prices for similar assets or liabilities in active markets; or quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability including yield curves, volatilities and prepayment speeds.

Level 3 – unobservable inputs for the asset or liability that reflect the Company’s own assumptions about assumptions that market participants would use in the pricing of the asset or liability and that are consequently not based on market activity but upon particular valuation techniques.

The Company’s assets that are measured at fair value on a recurring basis are its available for sale investment securities and its interest rate swaps. The Company obtains fair values on its securities using information from a third-party servicer. If quoted prices for securities are available in an active market, those securities are classified as Level 1 securities. The Company has U.S. Treasury Notes and certain equity securities that are classified as Level 1 securities. Level 2 securities were primarily comprised of U.S. Agency bonds, residential mortgage-backed securities, obligations of state and political subdivisions and corporate securities. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, bids and offers. On a quarterly basis, the Company reviews the pricing information received from the Company’s third-party pricing service. This review includes a comparison to non-binding third-party quotes.

The fair values of derivatives are based on valuation models from a third party using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2).

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Recurring Fair Value Measurements

The following table sets forth the Company’s financial assets that were accounted for at fair value on a recurring basis as of the periods presented by level within the fair value hierarchy. During the three months ended March 31, 2021 and 2020, the Company did not make any transfers between any levels within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
March 31, 2021
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies	$	7,742	$	85,291	$	—	$	93,033
Mortgage-backed securities	—		325,831		—		325,831
Collateralized mortgage obligations	—		218,669		—		218,669
Asset-backed securities	—		40,187		—		40,187
Obligations of states and political subdivisions	—		255,122		—		255,122
Debt securities	—		35,552		—		35,552
Total securities available for sale	7,742		960,652		—		968,394
Equity securities, at fair value	—		14,590		—		14,590
Derivative assets	—		52,725		—		52,725
Total Assets	$	7,742	$	1,027,967	$	—	$	1,035,709
Liabilities:
Derivative liabilities	$	—	$	52,801	$	—	$	52,801
Total Liabilities	$	—	$	52,801	$	—	$	52,801
December 31, 2020
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies	$	9,392	$	55,610	$	—	$	65,002
Mortgage-backed securities	—		230,100		—		230,100
Collateralized mortgage obligations	—		250,573		—		250,573
Asset-backed securities	—		40,690		—		40,690
Obligations of states and political subdivisions	—		233,710		—		233,710
Debt securities	—		35,671		—		35,671
Total securities available for sale	9,392		846,354		—		855,746
Equity securities, at fair value	—		14,694		—		14,694
Derivative assets	—		80,734		—		80,734
Total Assets	$	9,392	$	941,782	$	—	$	951,174
Liabilities:
Derivative liabilities	$	—	$	80,877	$	—	$	80,877
Total Liabilities	$	—	$	80,877	$	—	$	80,877

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Non-Recurring Fair Value Measurements

The Company has a held for sale loan portfolio that consists of residential mortgages that are being sold in the secondary market. The Company records these mortgages at the lower of cost or fair market value. Fair value is generally determined by the value of purchase commitments.

Other real estate owned (OREO) and other repossessed assets, representing property acquired through foreclosure or deed in lieu of foreclosure, are carried at fair value less estimated disposal costs of the acquired property. Fair value on other real estate owned is based on the appraised value of the collateral using discount rates or capitalization rates similar to those used in impaired loan valuation. The fair value of other repossessed assets is estimated by inquiry through a recognized valuation resource.

Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Changes in economic conditions, locally or nationally, could impact the value of the estimated amounts of impaired loans, OREO and other repossessed assets.

The following table summarized the Company’s financial assets that are measured at fair value on a non-recurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total Fair Value
March 31, 2021
Assets:
Individually evaluated loans	$	—	$	—	$	2,297	$	2,297
Loans held for sale	—		1,230		—		1,230



December 31, 2020
Assets:
Individually evaluated loans	$	—	$	—	$	2,417	$	2,417
Loans held for sale	—		1,335		—		1,335

Fair Value of Certain Financial Instruments

Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each category of financial instruments. Management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.

The estimation methodologies used, the estimated fair values and recorded book balances at March 31, 2021 and December 31, 2020, are outlined below.

This summary, as well as the table below, excludes financial assets and liabilities for which carrying value approximates fair value. For financial assets, these include cash and cash equivalents. For financial liabilities, these include noninterest-bearing demand deposits, savings and interest-bearing transaction accounts and federal funds purchased and securities sold under agreements to repurchase. The estimated fair value of demand, savings and interest-bearing transaction accounts is the amount payable on demand at the reporting date. Carrying value is used because there is no stated maturity on these accounts, and the customer has the ability to withdraw the funds immediately. Also excluded from this summary and the following table are those financial instruments recorded at fair value on a recurring basis, as previously described.

The fair value of investment securities held to maturity is measured using information from the same third-party servicer used for investment securities available for sale using the same methodologies discussed above.

FHLB stock is an equity interest that can be sold to the issuing FHLB, to other FHLBs, or to other member banks at its par value. Because ownership of these securities is restricted, they do not have a readily determinable fair value. As such, the Company’s FHLB stock is recorded at cost or par value and is evaluated for impairment each reporting period by considering the ultimate recoverability of the investment rather than temporary declines in value. The Company’s evaluation primarily includes an evaluation of liquidity, capitalization, operating performance, commitments, and regulatory or legislative events.

The net loan portfolio has been valued using an exit price approach, which incorporates a buildup discount rate calculation that uses a swap rate adjusted for credit risk, servicing costs, a liquidity premium and a prepayment premium.

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For fixed maturity certificates of deposit, fair value is estimated based on the present value of discounted cash flows using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.

The fair value of long-term debt is based upon the discounted value of contractual cash flows. The Company estimates the discount rate using the rates currently offered for similar borrowing arrangements. The fair value of subordinated debentures is based on bid/ask prices from brokers for similar types of instruments.

The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair value of commitments to extend credit and standby letters of credit are deemed immaterial.

The following table presents the carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments not carried at fair value as of March 31, 2021 and December 31, 2020:


(in thousands)	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2021
Financial Assets:
Investment securities held to maturity	$	84,994	$	87,215	$	—	$	86,796	$	419
Federal Home Loan Bank and other membership bank stocks	10,772		10,772		—		10,772		—
Loans, net	6,041,694		6,128,887		—		—		6,128,887
Financial Liabilities:
Certificates of deposit	953,370		950,053		—		950,053		—
Other borrowings	25,000		24,906		—		24,906		—
Subordinated debentures	118,267		117,842		—		—		117,842
December 31, 2020
Financial Assets:
Investment securities held to maturity	$	90,766	$	93,868	$	—	$	93,868	$	—
Federal Home Loan Bank and other membership bank stocks	11,979		11,979		—		11,979		—
Loans, net	5,950,108		5,939,413		—		—		5,939,413
Financial Liabilities:
Certificates of deposit	1,078,256		1,077,620		—		1,077,620		—
Other borrowings	25,000		25,206		—		25,206		—
Subordinated debentures	118,257		118,208		—		—		118,208

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Statements Regarding Forward Looking Information

The information disclosed in this document includes various forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to credit quality (including delinquency trends and the allowance for credit losses), corporate objectives and other financial and business matters. The words “anticipates,” “projects,” “intends,” “estimates,” “expects,” “believes,” “plans,” “may,” “will,” “should,” “could” and other similar expressions are intended to identify such forward-looking statements. The Company cautions that these forward-looking statements are necessarily speculative and speak only as of the date made, and are subject to numerous assumptions, risks and uncertainties, all of which may change over time. Actual results could differ materially from such forward-looking statements.

In addition to the risk factors disclosed elsewhere in this document and in the Company's most recently filed Annual Report on Form 10-K, the following factors, among others, could cause the Company’s actual results to differ materially and adversely from such forward-looking statements: changes in the financial services industry and the U.S. and global capital markets; changes in economic conditions nationally, regionally and in the Company’s markets; the ongoing COVID-19 outbreak and its effects on economic activity; the nature and timing of actions of the Federal Reserve Board and other regulators; the nature and timing of legislation affecting the financial services industry; government intervention in the U.S. financial system; changes in levels of market interest rates; pricing pressures on loan and deposit products; credit risks of Lakeland’s lending and equipment financing activities; successful implementation, deployment and upgrades of new and existing technology, systems, services and products; and customers’ acceptance of Lakeland’s products and services.

The above-listed risk factors are not exhaustive, particularly as to possible future events, and new risk factors may emerge from time to time. Certain events may occur that could cause the Company’s actual results to be materially different than those described in the Company’s periodic filings with the Securities and Exchange Commission. Any statements made by the Company that are not historical facts should be considered to be forward-looking statements. The Company is not obligated to update and does not undertake to update any of its forward-looking statements made herein.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Company and its subsidiaries conform to accounting principles generally accepted in the United States of America and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company, Lakeland and its subsidiaries, including Lakeland NJ Investment Corp., Lakeland Investment Corp., Lakeland Equity, Inc. and Lakeland Preferred Equity, Inc. All intercompany balances and transactions have been eliminated.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. There have been no material changes in the Company’s critical accounting policies, judgments and estimates, including assumptions or estimation techniques utilized, as compared to those disclosed in the Company’s most recent Annual Report on Form 10-K.

Executive Summary

Although the COVID-19 pandemic continues, the restrictions that have been in place for over a year are beginning to loosen in many areas as vaccines are administered and people start to feel safer. It is still unknown what changes in the behavior of customers, businesses and their employees will result from the COVID-19 pandemic. As a result of the COVID-19 pandemic and the actions taken to contain or reduce its impact, the Company may experience changes in the value of collateral securing outstanding loans, reductions in the credit quality of borrowers and the inability of borrowers to repay loans in accordance with their terms. Management is actively managing credit risk in the Company's commercial loan portfolio, including reviewing the industries that the Company believes are most likely to be impacted by emerging COVID-19 events. These and similar factors and events may have substantial negative effects on the business, financial condition, and results of operations of the Company and its customers.

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Emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic was provided by the form of the CARES Act, which was signed into law on March 27, 2020, and the Consolidated Appropriations Act, 2021 (the "CAA"), which was signed into law on December 27, 2020. The programs provided funding for the Small Business Administration ("SBA") to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program ("PPP"). As a qualified SBA lender, we were automatically authorized to originate PPP loans under both programs. The SBA guarantees 100% of the PPP loans made to eligible borrowers with loan forgiveness under the PPP so long as employee and compensation levels of the business are maintained and the loan proceeds are used for payroll and other qualifying expenses. In addition, Section 4013 of the CARES Act, as interpreted by the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)" (the “Revised Statement”), dated April 17, 2020, included criteria that enable financial institutions to exclude from TDR status loans that are modified for customers affected by COVID-19. The Company elected to suspend the classification of loan modifications as TDR if they qualify under Section 4013 or the Revised Statement.

The CARES Act also provided financial institutions with the option to defer adoption of the ASU 2016-13 until the earlier of the end of the pandemic or December 31, 2020. The CAA extended the option to delay implementation of ASU 2016-13 until January 1, 2022, however the Company adopted the standard as of December 31, 2020, and has applied it retroactively to January 1, 2020. Prior year periods were not required to be restated.

Management has identified that the COVID-19 pandemic could adversely affect the liquidity of the Company. As such, management has taken specific steps to minimize the risk. In addition to processes already in place to closely monitor changes in liquidity needs, including those that may result from the COVID-19 pandemic, the Company has increased collateral and expanded access to additional borrowings should it be necessary in order to meet liquidity needs. While the Company is unable to predict actual fluctuations in deposit or cash balances, management continues to monitor liquidity and believes that its current level of liquidity is sufficient to meet its current and future operational needs.

In addition, the carrying value of investment securities, right-of-use assets, goodwill and other intangibles could decrease, resulting in future impairment losses. Management will continue to evaluate current economic conditions to determine if a triggering event would impact the current valuations for these assets. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company's business.

Financial Overview

For the first quarter of 2021, the Company reported net income of $23.2 million and earnings per diluted share of $0.45 compared to net income of $12.4 million and earnings per diluted share of $0.24 for the first quarter of 2020. For the first quarter of 2021, annualized return on average assets was 1.22%, annualized return on average common equity was 12.20% and annualized return on average tangible common equity was 15.39% compared to 0.76%, 6.77%, and 8.65%, respectively, for the first quarter of 2020.

First quarter 2021 results were favorably impacted by a negative provision for credit losses of $2.6 million compared to a provision of $9.2 million for the same period last year. The negative provision for credit losses was due primarily to an improvement in forecasted macroeconomic conditions and continued strength in asset quality.

Net interest margin was 3.19% in the first quarter of 2021 compared to 3.28% in the first quarter of 2020. Total loans, net of deferred fees, grew $87.7 million, or 1%, to $6.11 billion during the first three months of 2021 and total deposits increased $179.4 million, or 3%, from December 31, 2020 to March 31, 2021, to $6.64 billion.

Comparison of Operating Results for the Three Months Ended March 31, 2021 and 2020

Net Income

Net income was $23.2 million, or $0.45 per diluted share, for the first quarter of 2021 compared to net income of $12.4 million, or $0.24 per diluted share, for the first quarter of 2020. The increase in net income compared to the first quarter of 2020 was due primarily to the negative provision for credit losses mentioned above.

Net Interest Income

Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets. The Company’s net interest income is determined by: (i) the volume of interest-earning assets that it holds and the yields that it earns on those assets, and (ii) the volume of interest-bearing liabilities that it has assumed and the rates that it pays on those liabilities.

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Net interest income on a tax equivalent basis for the first quarter of 2021 was $56.9 million, compared to $50.0 million for the first quarter of 2020. The increase in net interest income compared to the first quarter of 2020 was due primarily to the growth of interest-earning assets and a reduction in the cost of interest-bearing deposits. The net interest margin decreased to 3.19% in the first quarter of 2021 from 3.28% in the first quarter of 2020 primarily as a result of a decrease in the yield on interest-earning assets, particularly a reduction in the yield on loans due to decreases in the prime rate and LIBOR during 2020, an increase in lower yielding federal funds sold and the origination of PPP loans, which earn an effective yield of 2.50% including amortization of fees and costs. The components of net interest income are discussed in greater detail below.

The following table reflects the components of the Company’s net interest income, setting forth for the periods presented, (1) average assets, liabilities and stockholders’ equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) the Company’s net interest spread (i.e., the average yield on interest-earning assets less the average cost of interest-bearing liabilities) and (5) the Company’s net interest margin. Rates for the three months ended March 31, 2021 and March 31, 2020 are computed on a tax equivalent basis using a tax rate of 21%.


	For the Three Months Ended March 31, 2021						For the Three Months Ended March 31, 2020
(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid

ASSETS
Interest-earning assets:
Loans (1)	$	6,089,757	$	58,778	3.91	%	$	5,208,097	$	57,857	4.47	%
Taxable investment securities and other	881,425		3,981		1.81	%	817,143		5,229		2.56	%
Tax-exempt securities	122,054		775		2.54	%	62,844		420		2.67	%
Federal funds sold (2)	136,900		37		0.11	%	44,919		159		1.42	%
Total interest-earning assets	7,230,136		63,571		3.56	%	6,133,003		63,665		4.17	%
Noninterest-earning assets:
Allowance for credit losses	(72,348)						(40,621)
Other assets	546,815						472,920
TOTAL ASSETS	$	7,704,603					$	6,565,302

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings accounts	$	604,931	$	78	0.05	%	$	496,798	$	85	0.07	%
Interest-bearing transaction accounts	3,388,027		2,866		0.34	%	2,830,778		6,826		0.97	%
Time deposits	1,044,915		2,179		0.83	%	872,998		3,952		1.81	%
Borrowings	216,753		1,557		2.87	%	437,578		2,815		2.54	%
Total interest-bearing liabilities	5,254,626		6,680		0.51	%	4,638,152		13,678		1.18	%
Noninterest-bearing liabilities:
Demand deposits	1,545,968						1,109,638
Other liabilities	133,754						80,793
Stockholders' equity	770,255						736,719
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	7,704,603					$	6,565,302
Net interest income/spread			56,891		3.05	%			49,987		2.99	%
Tax equivalent basis adjustment			163						88
NET INTEREST INCOME			$	56,728					$	49,899
Net interest margin (3)					3.19	%					3.28	%

(1)Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.

(2)Includes interest-bearing cash accounts.

(3)Net interest income divided by interest-earning assets.

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Interest income on a tax equivalent basis decreased $94,000 from $63.7 million in the first quarter of 2020 to $63.6 million in the first quarter of 2021. The impact of the 61 basis point reduction in the yield on interest-earning assets was mostly offset by growth in the volume of interest-earning assets. Average federal funds sold in the first quarter of 2021 increased $92.0 million compared to the first quarter of 2020, while the yield decreased 131 basis points to 0.11% for the first quarter of 2021. Average loans increased $881.7 million compared to the first quarter of 2020 while the yield on average loans decreased 56 basis points to 3.91% in the first quarter of 2021 from the first quarter of 2020. Total average taxable investment securities increased $64.3 million to $881.4 million for the first quarter of 2021 from the first quarter of 2020, while average tax-exempt securities increased $59.2 million to $122.1 million for the same periods. The yield on average taxable investment securities decreased 75 basis points from the first quarter of 2020 to 1.81% for the first quarter of 2021, while the yield on average tax-exempt investment securities decreased 13 basis points to 2.54%.

Total interest expense of $6.7 million in the first quarter of 2021 was $7.0 million less than the $13.7 million reported for the same period in 2020. Total average interest-bearing liabilities increased $616.5 million as a result of organic growth while the cost of average interest-bearing liabilities decreased from 1.18% in the first quarter of 2020 to 0.51% in the first quarter of 2021 largely driven by reductions in market interest rates. For the first quarter of 2021, the cost of interest-bearing transaction accounts and time deposits decreased by 63 basis points and 98 basis points, respectively, when compared to the same period in 2020. Average borrowings decreased $220.8 million in the first quarter of 2021 when compared to the first quarter of 2020. In 2020, the Company repaid a total of $165.8 million in FHLB advances and federal funds purchased have been lower in 2021, as the increase in deposits has provided liquidity.

Provision for Credit Losses

The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost at December 31, 2020, effective January 1, 2020. The Company applied the standard's provisions as a cumulative-effect adjustment to retained earnings as of January 1, 2020. ASU 2016-13 requires the measurement of expected credit losses for financial assets, including investments, loans and certain off-balance-sheet credit exposures, measured at amortized cost. Quarterly amounts for the first quarter of 2020 do not reflect the adoption of ASU 2016-13.

In determining the provision for credit losses on investments, loans and off-balance-sheet credit exposures, management measures expected credit losses based on relevant information about past events, current conditions, reasonable and supportable forecasts, prepayments and future economic conditions. The key assumptions of the methodology include the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The Company uses its best judgment to assess economic conditions and loss data in estimating the allowance for credit losses and these estimates are subject to periodic refinement based on changes in underlying external or internal data.

In the first quarter of 2021, a $2.6 million negative provision for credit losses was recorded, compared to $9.2 million provision for credit losses on loans for the same period last year. The provision is comprised of a negative provision for credit losses on loans of $2.8 million, a provision on off-balance-sheet exposures of $24,000 and a provision for credit losses on securities of $142,000. The negative provision on loans was due primarily to an improvement in forecasted macroeconomic conditions and continued strength in asset quality of loans. The Company recorded loan charge-offs of $1.3 million and recoveries on loans of $206,000 in the first quarter of 2021 compared to loan charge-offs of $483,000 and loan recoveries of $141,000 in the first quarter of 2020. For more information regarding the determination of the provision, see “Risk Elements” below.

Noninterest Income

Noninterest income decreased $2.3 million to $5.8 million for the first quarter of 2021 compared to $8.0 million during the same period in 2020 due primarily to a $2.3 million reduction in swap income. Service charges on deposit accounts for the first quarter of 2021 decreased $204,000 compared to the first quarter of 2020 due primarily to changes in customer behavior resulting from the pandemic. Losses on equity securities totaled $144,000 for the first quarter of 2021 compared to losses of $653,000 during the same period in 2020. Gains on sales of loans for the first quarter of 2021 increased $293,000 compared to the first quarter of 2020 due primarily to increased volume of sales of residential mortgages driven by lower interest rates and increased demand for mortgage loans. Additionally, the first quarter of 2020 included gains on sales of investment securities of $342,000 compared to none in the first quarter of 2021.

Noninterest Expense

Noninterest expense in the first quarter of 2021 totaled $33.9 million compared to $32.5 million reported for the same quarter of 2020, an increase of $1.4 million. Salaries and employee benefits expense was $20.5 million for the first quarter of 2021, increasing $791,000, or 4%, from the same period last year, as a result of additions to staff to support continued growth and normal merit increases. The Company recorded occupancy expense of $3.0 million and $2.8 million for the first quarters of 2021 and 2020, respectively, an increase of $183,000 due to increased cleaning and snow removal expenses. Furniture and equipment expense increased $739,000 compared to the first quarter of 2020 due primarily to an increase in costs associated

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with the Company's digital strategy initiative. FDIC insurance expense totaled $711,000 for the first quarter of 2021, an increase of $413,000 compared to the same period in 2020 resulting primarily from deposit growth as well as assessment credits recorded in the first quarter of 2020. Other expenses in the first quarter of 2021 were $487,000 less than the same period in 2020 due primarily to decreases in appraisal fees, consulting, travel and entertainment expenses. Additionally, the first quarter of 2020 included long-term debt prepayment fees of $356,000 compared to none in the first quarter of 2021.

The Company’s efficiency ratio, a non-GAAP financial measure, was 53.75% in the first quarter of 2021, compared to 55.30% for the same period last year. The Company uses this ratio because it believes that the ratio provides a good comparison of period-to-period performance and because the ratio is widely accepted in the banking industry. The following table shows the calculation of the efficiency ratio for the periods presented:


	For the Three Months Ended March 31,
(dollars in thousands)	2021			2020

Total noninterest expense	$	33,903		$	32,504
Amortization of core deposit intangibles	(226)			(265)

Long term debt prepayment fee	—			(356)
Noninterest expense, as adjusted	$	33,677		$	31,883

Net interest income	$	56,728		$	49,899
Noninterest income	5,759			8,011
Total revenue	62,487			57,910
Tax-equivalent adjustment on municipal securities	163			88
(Gains) losses on sales of investment securities	—			(342)
Total revenue, as adjusted	$	62,650		$	57,656
Efficiency ratio	53.75		%	55.30		%

Income Tax Expense

The effective tax rate in the first quarter of 2021 was 25.8% compared to 23.4% during the same period in 2020 primarily as a result of tax advantaged items declining as a percentage of pretax income.

Financial Condition

The Company’s total assets increased $107.5 million from December 31, 2020, to $7.77 billion at March 31, 2021. Total loans, net of deferred fees, were $6.11 billion, an increase of $87.7 million, or 1%, from $6.02 billion at December 31, 2020. Total deposits were $6.64 billion, an increase of $179.4 million, or 3%, from December 31, 2020, while total borrowings decreased $57.6 million to $255.3 million at March 31, 2021.

Loans

The information below for March 31, 2021 and December 31, 2020 is presented in accordance with ASU 2016-13. At the time of adoption of ASU 2016-13, the loan portfolio segmentation was expanded to nine portfolio segments, taking into consideration common loan attributes and risk characteristics, as well as historical reporting metrics and data availability. See Note 1 in Notes to the Consolidated Financial Statements in the Company's December 31, 2020 Annual Report on Form 10-K for a full description of the segments. The Company did not reclassify comparative financial periods prior to December 31, 2020 and has presented those disclosures under previously applicable U.S. GAAP.

The amortized cost of loans totaled $6.11 billion at March 31, 2021 and increased $87.7 million compared to December 31, 2020, primarily due to increases in commercial loans secured by real estate of $46.7 million, construction loans of $24.4 million and commercial, industrial and other loans of $22.4 million. The main reason for the increase in the commercial, industrial and other category was a net increase in PPP loans in the first quarter of 2021 of $61.5 million. For more information on the loan portfolio, see Note 4 in Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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Risk Elements

Commercial loans are placed on a non-accrual status with all accrued interest and unpaid interest reversed if (a) because of the deterioration in the financial position of the borrower, they are maintained on a cash basis (which means payments are applied when and as received rather than on a regularly scheduled basis), (b) payment of all contractual principal and interest is not expected, or (c) principal and interest have been in default for a period of 90 days or more unless the obligation is both well-secured and in process of collection. Residential mortgage loans and closed-end consumer loans are placed on non-accrual status at the time principal and interest have been in default for a period of 90 days or more, except where there exists sufficient collateral to cover the defaulted principal and interest payments, and the loans are well-secured and in the process of collection. Open-end consumer loans secured by real estate are generally placed on non-accrual status and reviewed for charge-off when principal and interest payments are four months in arrears unless the obligations are well-secured and in the process of collection. Interest thereafter on such charged-off consumer loans is taken into income when received only after full recovery of principal. As a general rule, a non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid and satisfactory payments have been received for a sustained period (usually six months), or when it otherwise becomes well-secured and in the process of collection.

Non-performing assets, including PCD loans, decreased from $42.8 million at December 31, 2020 to $31.1 million at March 31, 2021. The Company sold approximately $10.3 million in non-performing loans during the first quarter of 2021 and recorded a charge-off of $1.1 million on the sale. Non-accrual loans in the non owner occupied and owner occupied commercial loans secured by real estate categories decreased $3.7 million and $5.5 million, respectively. The percentage of non-performing assets to total assets was 0.40% at March 31, 2021 compared to 0.56% at December 31, 2020. Non-accrual loans at March 31, 2021 included four loan relationships with a balance of $1 million or greater, totaling $14.1 million and eight loan relationships between $500,000 and $1.0 million, totaling $5.1 million. At March 31, 2021, there were no loans that were past due more than 89 days and still accruing and at December 31, 2020, one loan with a recorded investment of $1,000 was past due more than 89 days and still accruing.

Troubled debt restructurings ("TDR") are those loans where the Company has granted concessions to the borrower in payment terms, either in rate or in term, as a result of the financial condition of the borrower. The CARES Act provided relief from TDR classification for certain loan modification related to the COVID-19 pandemic beginning March 1, 2020 through the earlier of 60 days after the end of the pandemic or December 31, 2020. Additionally, banking regulatory agencies issued interagency guidance that COVID-19 related short-term modifications (i.e., six months or less) granted to borrowers that were current as of the loan modification program implementation date do not need to be considered TDRs. In December 2020, the CAA extended this guidance to modifications made until the earlier of January 1, 2022 or 60 days after the end of the COVID-19 national emergency. The Company elected these provisions of the CARES Act and CAA and excluded modified loans that met the required guidelines for relief from its TDR classification. On March 31, 2021, the Company had $3.8 million in loans that were troubled debt restructurings and accruing interest income compared to $3.9 million at December 31, 2020. These loans are expected to be able to perform under the modified terms of the loan. At both March 31, 2021 and December 31, 2020, the Company had $1.1 million in troubled debt restructurings that were included in non-accrual loans.

Since the end of March 2020, the Company has been working with borrowers negatively impacted by the COVID-19 pandemic. At March 31, 2021, there were no loans on payment deferral compared to $9.7 million, or 0.2% of total loans at December 31, 2020. At March 31, 2021 CARES Act modifications totaled $43.2 million compared to $40.0 million at December 31, 2020.

At March 31, 2021 and December 31, 2020, the Company had $141.0 million and $139.4 million, respectively, of loans that were rated substandard that were not classified as non-performing. There were no loans at March 31, 2021, other than those designated non-performing or substandard, where the Company was aware of any credit conditions of any borrowers or obligors that would indicate a strong possibility of the borrowers not complying with present terms and conditions of repayment and which may result in such loans being included as non-accrual, past due or renegotiated at a future date.

Allowance for credit losses on loans

The Company adopted the ASU 2016-13 standard, which requires the measurement of expected credit losses for financial assets measured at amortized cost, including loans and certain off-balance-sheet credit exposures. Under the standard, the Company's methodology for determining the allowance for credit losses on loans is based upon key assumptions, including the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation.

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The overall balance of the allowance for credit losses on loans of $67.3 million at March 31, 2021 decreased $3.9 million from December 31, 2020, a decrease of 5% due primarily to an improvement in forecasted macroeconomic conditions and continued strength in asset quality. The change in the allowance within loan segments during the two comparable periods is principally due to changes in the Company's level of loan growth and the impact of changes in various economic factors on particular segments.

The following table sets forth for the periods presented, the historical relationships among the allowance for credit losses on loans, the provision for credit losses on loans, the amount of loans charged-off and the amount of loan recoveries:


(dollars in thousands)	For the Three Months Ended March 31, 2021			For the Three Months Ended March 31, 2020			For the Year Ended December 31, 2020
Allowance balance, beginning of the year	$	71,124		$	40,003		$	40,003
Impact of adopting ASU 2016-13	$	—		—			6,656
Loans charged off:
Commercial, secured by real estate	(879)			(169)			(422)
Commercial, industrial and other	(265)			—			(814)
Construction	—			—			(77)
Equipment finance	(94)			(84)			(284)
Residential Mortgage	—			(116)			(116)
Consumer	(32)			(114)			(340)
Total loans charged off	(1,270)			(483)			(2,053)
Recoveries:
Commercial, secured by real estate	11			26			72
Commercial, industrial and other	44			30			207
Construction	25			32			100
Equipment finance	11			14			65
Residential Mortgage	58			20			21
Consumer	57			19			76
Total recoveries	206			141			541
Net recoveries (charge-offs)	(1,064)			(342)			(1,512)
Provision for credit losses on loans	(2,808)			9,223			25,977
Allowance balance, end of year	$	67,252		$	48,884		$	71,124

Net charge-offs as a percentage of average loans outstanding	(0.07)		%	(0.03)		%	0.03		%
Allowance for credit losses on loans as a percentage of total loans outstanding	1.10		%	0.92		%	1.18		%
Allowance for credit losses on loans as a percentage of non-accrual loans	216.13		%	150.86		%	166.32		%
Non-accrual loans to total loans outstanding	0.51		%	0.61		%	0.71		%

Non-accrual loans of $31.1 million at March 31, 2021 decreased $11.6 million from December 31, 2020. The allowance for credit losses as a percent of total loans was 1.10% at March 31, 2021 compared to 1.18% at December 31, 2020. The decrease in the percentage of the allowance for credit losses as a percent of total loans was primarily due to the negative $2.6 million provision recorded in the first quarter of 2021 resulting primarily from improvement in forecasted macroeconomic conditions and strength in asset quality. Management believes, based on appraisals and estimated selling costs, that the majority of the Company's non-performing loans are adequately secured and that reserves on its non-performing loans are adequate. Based upon the process employed and giving recognition to all accompanying factors related to the loan portfolio, management considers the allowance for credit losses to be adequate at March 31, 2021.

Investment Securities

Investment securities totaled $1.05 billion at March 31, 2021 increasing $106.9 million compared to $946.5 million at December 31, 2020. For detailed information on the composition and maturity distribution of the Company’s investment securities portfolio, see Note 3 in Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

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Deposits

Total deposits increased from $6.46 billion at December 31, 2020 to $6.64 billion at March 31, 2021, an increase of $179.4 million, or 3%. Savings and interest-bearing transaction accounts increased $182.6 million due primarily to an increase in money market deposit accounts resulting from increased marketing efforts and a change in customer behavior towards more traditional banking alternatives in the current economy. Noninterest-bearing deposits increased $121.7 million during the first quarter of 2021 due in part to PPP loan proceeds. Time deposits decreased $124.9 million in the first quarter due to a decline in brokered deposits and a change in customer preferences in the low interest rate environment from term deposits to deposits that are available on demand.

Liquidity

“Liquidity” measures whether an entity has sufficient cash flow to meet its financial obligations and commitments on a timely basis. The Company is liquid when its subsidiary bank has the cash available to meet the borrowing and cash withdrawal requirements of customers and the Company can pay for current and planned expenditures and satisfy its debt obligations.

Lakeland funds loan demand and operation expenses from several sources:

•Net income. Cash provided by operating activities was $30.0 million for the first three months of 2021 compared to $24.4 million for the same period in 2020.

•Deposits. Lakeland can offer new products or change its rate structure in order to increase deposits. In the first three months of 2021, Lakeland’s deposits increased $179.4 million compared to an increase of $161.4 million during the first three months of 2020.

•Sales of securities. At March 31, 2021 the Company had $968.4 million in securities designated “available for sale.” Of these securities, $537.4 million were pledged to secure public deposits and for other purposes required by applicable laws and regulations.

•Repayments on loans.

•Credit lines. As a member of the FHLB, Lakeland has the ability to borrow overnight based on the market value of collateral pledged. Lakeland had $50.0 million in overnight borrowings from the FHLB on March 31, 2021. Lakeland also has overnight federal funds lines available for it to borrow up to $215.0 million, of which none were outstanding at March 31, 2021. Lakeland may also borrow from the discount window of the Federal Reserve Bank of New York based on the market value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New York as of March 31, 2021.

•Other borrowings. Lakeland can also generate funds by utilizing long-term debt or securities sold under agreements to repurchase that would be collateralized by security or mortgage collateral. At times the market values of securities collateralizing our securities sold under agreements to repurchase may decline due to changes in interest rates and may necessitate our lenders to issue a “margin call” which requires Lakeland to pledge additional collateral to meet that margin call.

Management and the Board monitor the Company’s liquidity through the Asset/Liability Committee, which monitors the Company’s compliance with certain regulatory ratios and other various liquidity guidelines. Management is closely monitoring changes in liquidity needs, including those that may result from the COVID-19 pandemic. The Company has increased collateral and expanded access to additional borrowings should it be necessary in order to meet liquidity needs. While we are unable to predict actual fluctuations in deposit or cash balances, management continues to monitor liquidity and believes that its current level of liquidity is sufficient to meet its current and future operational needs.

The cash flow statements for the periods presented provide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company to maintain an adequate level of liquidity. A discussion of the cash flow statement for the three months ended March 31, 2021 follows.

Cash and cash equivalents totaling $202.1 million on March 31, 2021 decreased $68.0 million from December 31, 2020. Operating activities provided $30.0 million in net cash. Investing activities used $212.9 million in net cash, primarily reflecting an increase in loans and available for sale securities. Financing activities provided $114.9 million in net cash primarily reflecting the net increase in deposits of $179.5 million, partially offset by a $57.6 million decrease in federal funds purchased and securities sold under agreements to repurchase. The Company anticipates that it will have sufficient funds available to meet its current loan commitments and deposit maturities.

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The following table sets forth contractual obligations and other commitments representing required and potential cash outflows as of March 31, 2021. Interest on subordinated debentures and long-term borrowed funds is calculated based on current contractual interest rates.


(in thousands)	Total		Within One Year		After One But Within Three Years		After Three But Within Five Years		After Five Years

Minimum annual rentals on noncancellable operating leases	$	21,003	$	3,277	$	5,266	$	4,205	$	8,255
Benefit plan commitments	4,818		397		816		745		2,860
Remaining contractual maturities of time deposits	953,370		758,709		182,470		12,191		—
Subordinated debentures	118,267		—		—		12,933		105,334
Loan commitments	1,186,641		842,497		161,984		31,034		151,126
Other borrowings	25,000		—		—		25,000		—
Interest on other borrowings (1)	36,896		5,829		11,659		10,451		8,957
Standby letters of credit	15,181		11,173		3,928		80		—
Total	$	2,361,176	$	1,621,882	$	366,123	$	96,639	$	276,532

(1) Includes interest on other borrowings and subordinated debentures at a weighted rate of 4.07%.

Capital Resources

Total stockholders’ equity increased to $768.1 million on March 31, 2021 from $763.8 million on December 31, 2020, an increase of $4.3 million. Book value per common share increased to $15.18 on March 31, 2021 from $15.13 on December 31, 2020. Tangible book value per share increased from $11.97 per share on December 31, 2020 to $12.03 per share on March 31, 2021, an increase of 1%. Please see “Non-GAAP Financial Measures” below. The increase in stockholders’ equity from December 31, 2020 to March 31, 2021 was primarily due to $23.2 million of net income, partially offset by other comprehensive loss of $13.1 million and by the payment of cash dividends on common stock of $6.4 million.

The Company and Lakeland are subject to various regulatory capital requirements that are monitored by federal banking agencies. Failure to meet minimum capital requirements can lead to certain supervisory actions by regulators; any supervisory action could have a direct material adverse effect on the Company or Lakeland or their financial statements. As of March 31, 2021, the Company and Lakeland met all capital adequacy requirements to which they are subject.

As of March 31, 2021, the Company’s capital levels remained characterized as “well-capitalized.”

The capital ratios for the Company and Lakeland for the periods presented are as follows:


	Tier 1 Capital to Total Average Assets Ratio				Common Equity Tier 1 to Risk-Weighted Assets Ratio				Tier 1 Capital to Risk- Weighted Assets Ratio				Total Capital to Risk- Weighted Assets Ratio
	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
The Company	8.51	%	8.37	%	9.98	%	9.73	%	10.47	%	10.22	%	13.02	%	12.84	%
Lakeland Bank	9.13	%	9.04	%	11.24	%	11.03	%	11.24	%	11.03	%	12.36	%	12.22	%
Required capital ratios including conservation buffer	4.00	%	4.00	%	7.00	%	7.00	%	8.50	%	8.50	%	10.50	%	10.50	%
“Well capitalized” institution under FDIC Regulations	5.00	%	5.00	%	6.50	%	6.50	%	8.00	%	8.00	%	10.00	%	10.00	%

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) was signed into law during the second quarter of 2018. The Act, among other matters, amends the Federal Deposit Insurance Act to require federal banking agencies to develop a specified Community Bank Leverage Ratio (the ratio of a bank's equity capital to its average total consolidated assets) for banks with assets of less than $10 billion. Qualifying participating banks that exceed this ratio shall be deemed to comply with all other capital and leverage requirements. In September 2019, the FDIC approved a final rule allowing community banks with a leverage capital ratio of at least 9% to be considered in compliance with Basel III capital requirements and exempt from the Basel Calculation. Under the final rule, banks with less than $10 billion in assets may elect the community bank leverage ratio framework if they meet the 9% ratio and if they hold 25% or less of assets in off-balance sheet exposures,

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and 5% or less of assets in trading assets and liabilities. For institutions that fall below the 9% capital requirement but remain above 8%, the final rule establishes a two-quarter grace period to either meet the qualifying criteria again or comply with the generally applicable capital rule. Lakeland Bancorp and Lakeland Bank elected not to use the Community Bank Leverage Ratio framework.

Non-GAAP Financial Measures

Reported amounts are presented in accordance with U.S. GAAP. The Company’s management uses certain supplemental non-GAAP information in its analysis of the Company’s financial results. Specifically, the Company provides measurements and ratios based on tangible equity and tangible assets. These measures are utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors.

The Company also provides measures based on what it believes are its operating earnings on a consistent basis, and excludes material non-routine operating items which affect the GAAP reporting of results of operations. The Company’s management believes that providing this information to analysts and investors allows them to better understand and evaluate the Company’s core financial results for the periods in question.

These disclosures should not be viewed as a substitute for financial results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.


(dollars in thousands, except per share amounts)	March 31, 2021			December 31, 2020
Calculation of Tangible Book Value per Common Share
Total common stockholders’ equity at end of period - GAAP	$	768,065		$	763,784
Less:
Goodwill	156,277			156,277
Other identifiable intangible assets, net	3,063			3,288
Total tangible common stockholders’ equity at end of period - Non-GAAP	$	608,725		$	604,219
Shares outstanding at end of period	50,598			50,480
Book value per share - GAAP	$	15.18		$	15.13
Tangible book value per share - Non-GAAP	$	12.03		$	11.97
Calculation of Tangible Common Equity to Tangible Assets
Total tangible common stockholders’ equity at end of period - Non-GAAP	$	608,725		$	604,219

Total assets at end of period	$	7,771,761		$	7,664,297
Less:
Goodwill	156,277			156,277
Other identifiable intangible assets, net	3,063			3,288
Total tangible assets at end of period - Non-GAAP	$	7,612,421		$	7,504,732
Common equity to assets - GAAP	9.88		%	9.97		%
Tangible common equity to tangible assets - Non-GAAP	8.00		%	8.05		%


	For the Three Months Ended March 31,
(dollars in thousands)		2021			2020
Calculation of Return on Average Tangible Common Equity
Net income - GAAP		$	23,175		$	12,392
Total average common stockholders’ equity		$	770,255		$	736,719
Less:
Average goodwill		156,277			156,277
Average other identifiable intangible assets, net		3,192			4,205
Total average tangible common stockholders’ equity - Non-GAAP		$	610,786		$	576,237
Return on average common stockholders’ equity - GAAP		12.20		%	6.77		%
Return on average tangible common stockholders’ equity - Non-GAAP		15.39		%	8.65		%

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Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Update 2020-04, an update to Topic 848, Reference Rate Reform. The update provides guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The update provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met and only applies to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In addition, the update provides optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification for contracts that are modified because of reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. The ASU allows companies to apply the standard as of the beginning of the interim period that includes March 12, 2020 or any date thereafter. The Company is currently assessing the impact to its financial statements; however, the impact is not expected to be material.

In January 2020, FASB issued Update 2020-01, an update to Topic 321, Investments, Topic 323, Joint Ventures and Topic 815, Derivatives and Hedging. The update clarifies the accounting for certain equity securities upon the application or discontinuation of the equity method of accounting in accordance with Topic 321. In addition, the update clarifies scope considerations for forward contracts and purchased options on certain securities. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2020. The update did not have a material impact on the Company's financial statements.

In December 2019, FASB issued Update 2019-12, an update to Topic 740, Income Taxes, as part of an initiative to reduce complexity in accounting standards for income taxes. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2021 with early adoption permitted. The Company does not expect the update to have a material impact on the Company's financial statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company manages interest rate risk and market risk by identifying and quantifying interest rate risk exposures using simulation analysis and economic value at risk models. Net interest income simulation considers the relative sensitivities of the balance sheet including the effects of interest rate caps on adjustable rate mortgages and the relatively stable aspects of core deposits. As such, net interest income simulation is designed to address the probability of interest rate changes and the behavioral response of the balance sheet to those changes. Market Value of Portfolio Equity represents the fair value of the net present value of assets, liabilities and off-balance-sheet items. Changes in estimates and assumptions made for interest rate sensitivity modeling could have a significant impact on projected results and conclusions. These assumptions could include prepayment rates, sensitivity of non-maturity deposits and other similar assumptions. Therefore, if our assumptions should change, this technique may not accurately reflect the impact of general interest rate movements on the Company’s net interest income or net portfolio value.

The starting point (or “base case”) for the following table is an estimate of the following year’s net interest income assuming that both interest rates and the Company’s interest-sensitive assets and liabilities remain at period-end levels. The net interest income estimated for this purpose for the next twelve months (the base case) is $219.2 million. The information provided for net interest income assumes that changes in interest rates change gradually in equal increments (“rate ramp”) over the twelve month period.


	Changes in Interest Rates
Rate Ramp	+200 bp		-100 bp
Asset/Liability Policy limit	(5.0)	%	(5.0)	%
March 31, 2021	0.1	%	1.4	%
December 31, 2020	0.2	%	1.4	%

The Company’s review of interest rate risk includes policy limits for net interest income changes in various “rate shock” scenarios. Rate shocks assume that current interest rates change immediately. The information provided for net interest income assumes fluctuations or “rate shocks” for changes in interest rates as shown in the table below.


	Changes in Interest Rates
Rate Shock	+300 bp		+200 bp		+100 bp		-100 bp
Asset/Liability policy limit	(15.0)	%	(10.0)	%	(5.0)	%	(5.0)	%
March 31, 2021	0.9	%	0.6	%	0.5	%	1.0	%
December 31, 2020	0.5	%	0.4	%	0.6	%	1.5	%

The base case for the following table is an estimate of the Company’s net portfolio value for the periods presented using current discount rates, and assuming the Company’s interest-sensitive assets and liabilities remain at period-end levels. The net portfolio value at March 31, 2021 (the base case) was $1.15 billion. The information provided for the net portfolio value assumes fluctuations or “rate shocks” for changes in interest rates as shown in the table below. Rate shocks assume that current interest rates change immediately.


	Changes in Interest Rates
Rate Shock	+300 bp		+200 bp		+100 bp		-100 bp
Asset/Liability policy limit	(25.0)	%	(20.0)	%	(10.0)	%	(10.0)	%
March 31, 2021	(3.7)	%	(1.8)	%	0.5	%	(7.3)	%
December 31, 2020	0.3	%	1.5	%	2.8	%	(10.1)	%

The information set forth in the above tables and the net interest income estimate set forth above are based on significant estimates and assumptions, and constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. For more information regarding the Company’s market risk and assumptions used in the Company’s simulation models, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes in net interest income requires the making of certain assumptions regarding prepayment and deposit decay rates, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and decay rates will approximate actual future loan prepayment and deposit withdrawal activity. Moreover, the net interest income table presented assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.

Item 4. Controls and Procedures

(a)Disclosure controls and procedures. As of the end of the Company’s most recently completed fiscal quarter covered by this report, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and are operating in an effective manner and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in internal controls over financial reporting. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending legal proceedings involving the Company or Lakeland other than those arising in the normal course of business. Management does not anticipate that the potential liability, if any, arising out of such legal proceedings will have a material effect on the financial condition or results of operations of the Company and Lakeland on a consolidated basis.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information regarding shares of our common stock repurchased during the first quarter of 2021.


Period	Total Number of Shares (or Units) Purchased (1)	Weighted Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs



January 1 to January 31, 2021	—	$	—	—	2,393,423
February 1 to February 28, 2021	—	—		—	2,393,423
March 1 to March 31, 2021	—	—		—	2,393,423

(1)On October 24, 2019, the Company announced that its Board of Directors authorized a new share repurchase program. Under the repurchase program, the Company may repurchase up to 2,524,458 shares of its common stock, or approximately 5% of its outstanding shares of common stock at September 30, 2019. Repurchases may be made from time to time through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretion of the Company and will depend on a variety of factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and the Company's financial performance. The share repurchase program has no expiration date.

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Item 3. Defaults Upon Senior Securities			Not Applicable


Item 4. Mine Safety Disclosures			Not Applicable


Item 5. Other Information			Not applicable

Item 6. Exhibits


31.1			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document)
101.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Lakeland Bancorp, Inc.
(Registrant)

/s/ Thomas J. Shara
Thomas J. Shara
President and Chief Executive Officer
(Principal Executive Officer)

/s/ Thomas F. Splaine
Thomas F. Splaine
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Date: May 7, 2021